Why your financial planning is more about the process than the plan

You’ll have read a lot in my articles over the last couple of years about the importance of having a financial plan in place. It’s vital as you go through your life journey to, hopefully, a rewarding and enjoyable retirement.

However, that’s only really half the story. As ex-world heavyweight boxing champion, Mike Tyson, once memorably put it: “Everyone has a plan ‘til they get punched in the mouth!”

So, taking my earlier advice a step further, I’d suggest that the real value of financial planning lies in being able to update your plan as necessary, and regularly review it so that it remains fit for purpose.

Sometimes your plan could be out of date soon after it’s written

A good plan will provide you with a handy starting point to set you on the road to a secure financial future.

But it is very possible that changes in circumstances – your own and external – could necessitate updating it soon after the ink has dried.

For example, someone putting a plan together in February 2020, the month before the pandemic hit, would have had no idea of the upheaval that was going to take place in the next two years.

Certain assumptions will be written into your plan. These will include internal and external factors such as:

• Your employment situation
• The state of your health
• Your current financial commitments and earnings
• Investment growth rates
• Current and projected inflation rates.

All of these could change at any time, and your plan will probably need to change to reflect that.

To take employment as an example, a report highlighted by Open Study College shows that you’ll have an average of six job changes by the time you’re 34.

Going a step beyond that, Zipia career experts suggest the average person will have 12 jobs in their working life.

Some job changes may be forced – redundancy or business failure – and some may be positive career progression. In each case, you should review your plan and amend it as necessary.

Your plan is just the starting point

This is not to say your initial plan has no value. But, in many respects, it’s the process we go through to put your plan together that’s more important than the plan itself.

In simple terms we’ll look to establish:

• Where you are now
• Where you want to get to
• How you’ll get there.

Clearly there’s no one-size-fits-all solution. For one thing, there’s no standard age at which the adviser/client relationship starts. And your financial plan at age 30 will look very different to your plan at age 50.

Your initial plan is tantamount to a financial health check. It’ll be a thorough review of your circumstances and an outline of the steps you need to take to achieve your financial goals.

External events can blow a plan off-course

As you’ve already read, as part of your initial planning process we’ll make certain assumptions to help inform your plan.

These will include external factors and statistics such as:

• The rate of inflation
• Investment growth rates
• Interest rates.

As we saw from 2009 to earlier this year, both inflation and interest rates can go through long periods where they hardly fluctuate. Equally, they can go through periods of turbulence.

Investment growth rates tend to fluctuate far more dramatically due to rising and falling stock markets.

This means that your initial plan will be based on our best assumptions. But, as the eminent economist John Maynard Keynes once said: “When the facts change, I change my mind.”

Keynes was talking about economics, but the same philosophy applies to financial planning.

The process is more important than the plan

The value you derive from financial advice comes far more from the ongoing planning process than your plan itself.

The ongoing process, usually based around an annual planning meeting, gives you the opportunity not only to check your plans are on track, but also to flag up any concerns or worries you may have.

It’s also an opportunity to start mapping out your own plans and talking through the impact they could have on your long-term financial situation.

You’ll get reassurance from that process – and further reassurance from the fact that your plan can be adjusted and corrected to take account of even the most extreme changes to your circumstances.

The goal should be a long-term relationship

A lot of the reassurance you’ll get derives from the type of long-term relationship that any adviser is looking to develop with his or her clients.

Speaking personally, I’ve long felt the better I can get to know you as a client, the better the advice you’ll get from me. This is primarily down to the fact that if I know what motivates you – and also what worries you – the easier it is to tailor your planning process to meet your needs.

It’s possible that you may have had financial advice previously. During my initial meetings with clients most will have existing financial products in place. These will usually be based on specific needs such as life insurance for a mortgage.

Such products can clearly be important but the process you went through to get them is likely to have been simply transactional and rarely deserves being described as “advice”.

The importance of cash flow modelling

The importance of ongoing advice and regular reviews highlights the crucial role cash flow forecasting plays in the advice process.

Predicting what will happen in the future can be tricky. As the last couple of years have shown us, no one can ever be sure quite what is around the corner.

While no one has a crystal ball, one way I can help you plan for your future is by using cash flow modelling to help you to understand what your financial future looks like, meaning you can make more informed decisions.

Get in touch

If you’d like to talk about a new financial plan, or review your existing plan, please get in touch.

You can call me on 07769 156 250.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Foster Denovo Limited is authorised and regulated by the Financial Conduct Authority.