Do you have a financial game plan?
Thursday, 25 February 2010
Not many professional sports teams go into a game without some sort of game plan. The game plan generally consists of ways to improve your team's advantages and decrease any disadvantages. You can do the same thing for your finances.
Generally speaking the financial risks in life are that we:
· Live too long (and run out of money)
· Die too soon (and leave dependents without enough)
· Become Disabled (and unable to earn an income whilst using up savings)
· Lose your job (and not have an adequate income whilst using up savings)
The last point is frequently the one that concerns most people because it is perceived as a risk that is “here and now”. Realistically it is the one area that a financial adviser cannot help enormously with, other than helping to create contingency plans and funds.
The other areas are all manageable with foresight and planning. Which risk is the most important will vary depending on your stage of life, available resources and priorities. The first point is that financial planning is not a “one size fits all” strategy. Every person is unique, and every persons situation different and ever-changing. Therefore your game plan must be flexible.
The most basic element of personal financial planning is cash management. Making sure that you keep more of what you earn than what you spend. This can be likened to the basic skills required to be able to play the game – you must have the basic skills established first.
Once we have those, we need goals to focus upon. The game plan is designed to get the result you want ultimately. Thus it begins by determining what that result is – identify the goal.
Next identify what can prevent that goal being achieved. What are the risks? What are your weaknesses? In general strategies can be put in place if those risks and weaknesses are identified. There is an old saying that "good defence leads to good offence" - so be prepared to expend a fair amount of energy defending first. The cost should be relative to the ultimate objective.
Having made sure the personal skill level is adequate, and what the ultimate goal is, it can then be broken down into shorter term goals and targets that complement this. In time your plan will start evolving.
Having eliminated as many risks as possible, you can then devise your offensive strategy. Where are the strengths, and what risks are you comfortable taking? What is your style, and how do you want to play the game? Are you prepared to sacrifice short term territory for long term gains?
The defensive strategy is then devised. Areas such as emergency funds, insurance and debt management are all part of ensuring that you keep what you have intact. Who are your opponents? Inflation, taxation, time, market volatility…..complacency?
The game plan – built upon the defence – then considers your offensive options. Taxation planning, investment and retirement planning, diversification and estate planning are all options available for you to use in attaining the objective. Who you have selected on your team will make a difference too of course, as will be able to make corrections during the game.
A personal financial plan, like any good game plan, can provide excellent results if executed well.
Talk to your InsuranceNet adviser for more information.
This information is general in nature and should not be used as a substitute for financial advice. Always consult your financial adviser before making any financial decisions.