Why have a financial plan?

It is often said that those who fail to plan, plan to fail. The same could be said for not having a financial plan. Creating this will build a solid foundation for life and should pay dividends over time. Through conversations with three of our financial planners, this article explains what a financial plan is, when you need to think about setting one up and what a good plan looks like.

Charlotte Andrew
Published: 16 Feb 2021 Updated: 29 Jun 2022

What is a financial plan?

Establishing a financial plan allows you to understand where you are today, where you want to be in the future and whether you’re on track to get there. ‘Without a financial plan, people tend to end up living for the day when it comes to their money,’ says David Cummins, Managing Partner, Financial Planning, Maidstone. ‘They rarely consider how they will achieve long-term financial security for themselves and their families.’

‘A financial plan takes your future goals and objectives and sets out a way for you to achieve them,’ adds Emma Sterland, Managing Director, Financial Planning, London. ‘It helps you to understand what specific steps you need to take. For example, you might want to retire at the age of 65 and think you'll need a retirement income of £20,000. You might have some other important financial goals too, such as supporting your children financially through university or helping with a deposit towards their first home. A financial plan summarises your current situation and looks at what contributions you’re making to your pension now and how much you are saving for your children, along with the amount of investment risk you’re taking. You might see that you need to increase your pension and savings contributions and consider how much risk you are prepared to take if you are going to achieve your objectives.’

When’s the right time to create a financial plan?

According to Chris Down, Financial Planning Director, Exeter, ‘setting up a financial plan is usually triggered by a significant life event such as the birth of a child, receiving an inheritance or a change of job, but the earlier you think about your financial plan, the better. By giving yourself time, you can take the necessary action to cover any shortfalls in your plan before it becomes too late or costly to do so.’

‘I don’t think it’s ever too early to have a high-level, light-touch financial plan,’ says Emma. 'This could include making pension contributions at the very start of your career or saving money into a Junior ISA for your children from birth. Remember, the value of investments within your pension or Junior ISA can go up and down. It would be impractical for most people to have a more involved plan until they have a disposable income that they can save and invest regularly.'

At a younger age, it would also be unrealistic to say you know exactly what you need in the future.

‘At the age of 40, you’re unlikely to know exactly what you will need at 60,’ Emma continues. ‘That being said, you’ll probably know that you want to have an enjoyable and comfortable retirement. Your plans won’t necessarily be refined, but you know what you’re ultimately trying to achieve. You can start making small, manageable steps now to create good financial habits which will help you to achieve your goals and objectives.

‘I strongly believe if everyone had a light-touch plan at the earlier stage of their life, they would be in a much stronger financial position. For example, say if when you’re 50 you decide that you want to retire at 60 having no financial plan whatsoever, you only have 10 years to achieve that goal. The steps you need to take are likely to be drastic in comparison to those you might have taken if you have thought about your plan earlier in life.’

What does a financial planner do?

A financial planner can be an impartial sounding board when it comes to creating a financial plan. ‘In my role, I allow people to see things as they really are,’ says Chris. ‘It’s similar to holding up a mirror, which can be uncomfortable when they don’t like what they see.’

In order to rectify this, a financial planner will help a person to decide what is important to them. ‘I often ask people ‘what is this money for?’ and sometimes, they don’t know,’ Chris explains. ‘They have often acquired wealth but don’t know what to do with it. A financial planner will get to the bottom of this by asking where they are going personally. All too often, people’s finances aren’t aligned with that journey.’

The knowledge and expertise of a financial planner cannot be understated when creating a financial plan. ‘In addition to establishing someone’s objectives, we concentrate on risk, timescales, tax and we will put together a strategy, which is often multi-stranded, in the most efficient way possible,’ David highlights. ‘It might not be the obvious choice or a solution you’ve read about in the Sunday papers!’

Can I create a plan without professional help?

In short, yes you can, but unless you’re a qualified plumber, would you service and fix your own boiler? Without the relevant knowledge, you could end up causing more damage which could become even more costly in the long term. The same can be said for not taking professional financial advice.

‘The financial world is complicated and filled with allowances, rules and tax. Without the relevant qualifications and knowledge, it can be difficult to understand how these elements will impact upon you personally,’ Emma points out. ‘It isn’t always crystal clear what the outcome will be and what compromises should be made. A financial planner should be asking challenging questions about your future expectations and objectives, and consider how realistic they are. If you’re not working alongside a professional, can you truly do that yourself?’

Is every financial plan different?

There might be some common themes across all financial plans, but every plan should be individual as everyone’s objectives and goals are different. ‘If you asked 10 people what their perfect house looks like, they would all give you very different answers,’ says David. ‘The same goes for a financial plan. Ask one person what their financial goals are and their answer is likely to be very different to the next person you talk to.’

A financial plan should take personal preferences into account too. ‘This could range from what someone wants to invest in, such as ethical and sustainable funds, to the amount of control someone wants to keep over an asset they are passing on,’ Emma states. ‘I recently worked with a client who was retired and had a rental property. I initially suggested that she sell the property and use the proceeds to fund her lifestyle. She was uncomfortable with this and after asking a number of questions, it transpired that the property was purchased by her late husband and it had significant sentimental value. She specifically wants to retain the property to pass it on to their children on her death. Professional financial planning is all about taking the facts and combining them with personal circumstances and emotions to create a bespoke plan.’

What does a good financial plan look like?

For people of working age, a good financial plan should highlight the need for life insurance or cover. ‘In my opinion, most people underestimate their need for this,’ says Emma. ‘Think about what the financial impact of your death or not being able to work would be on your family. If you want to achieve financial security, protecting your income source should be a part of your plan.’

‘The final plan should reflect your lifestyle too,’ states Chris. ‘It should be set out clearly and be easily understood with logical steps and conclusions. The plan itself won’t fix anything but it will highlight areas that need you attention.’

‘A good plan will stand up to pressure,’ David adds. ‘You need to be able to go back to it and tweak it, particularly if you change direction in life, for example, when your children leave school, or unfortunately if a relationship breaks down. The plan has to be reviewable and adaptable so that you can guide your actions towards the targets you want to hit.’

Evelyn Partners can help you create a financial plan

Whether you already have a financial plan in place or if you are looking to create one, with our knowledge and expertise, we can help. To find out more, book an initial consultation online.

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The value of an investment may go down as well as up, and you may get back less than you originally invested.

This article does not constitute personal advice. If you are in doubt as to the suitability of a particular course of action please contact a financial adviser.


This article was previously published on Tilney prior to the launch of Evelyn Partners.