How to create a financial plan

How to create a financial plan

Before we deliver the promise in the headline, you need to understand the difference between a financial adviser and a financial planner.

  • A financial adviser recommends which products you should buy, and sets them up for you.
  • A financial planner builds you a plan based on your long-term lifestyle goals and the cashflow you’ll need to fund them. We can also implement the plan for you, but that part of our service is entirely optional.

In our initial conversations with new clients, we ask a lot of questions.

One of the things we need to know is your current expenditure, and how that might change over time.

The easiest way to do it is to add up what’s in your bank accounts, work out how much you’re earning, and then calculate the shortfall between that total and the amount you’ll need. Your 2020 spending could be a good baseline, because most of us stayed home all year and didn’t incur much extra spending.

It’s important to be realistic about how much you spend, and perhaps add 10% as contingency, because you just never know what unexpected costs will crop up. You know what it’s like. The boiler breaks. Or you decide you want a new sofa. Or you treat the family to a spontaneous holiday.

We know you might baulk at the idea of listing the minutiae of your spending. We understand that it might feel too much like homework. But it doesn’t take forever, and it’s really important. Because, if we underestimate what it will cost to fund your intended lifestyle, the plan won’t work and you’ll run out of money to do what you want.

The other thing we ask about in the initial meeting are your financial hopes, dreams (and fears). Where you’re at and where you want to get to. That’s the fun part.

  • What do you want to do with your time once you’re no long earning (aka retired)?
  • What’s your ‘bucket list’, especially for the first 10-15 years of retirement when you’re (hopefully) still fit and healthy?
  • When will your mortgage and other debts be paid off?
  • What guaranteed income streams have you already got in place?
  • How much income will you need to live out the rest of your life, maybe to age 100?
  • Would you like to leave a legacy for family and friends?
  • Do you want to reduce the tax liability for you and your loved ones?

The better quality information you give us, the better plan we can build as a tax-efficient way of achieving what you want.

Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100