A brief guide to Financial Planningplanning Guide financial
Table of Contents Financial Planning The Process of Financial Planning Why do I need a Financial Plan? Do I need a Financial Advisor? Tips to Creating a Financial Plan Page 4-6 1. Monthly Budget 2. Debt 3. Credit Cards 4. Savings & Investments 5. Retirement 6.Insurances Protection Planning 7. Wills & Estate Planning 8. Review Financial Planning Summary Page 6 Meet u s a free for consul tation
3 Financial Planning Like everything in life we need to plan and be organised to ensure the best possible outcome, the same is true about financial planning. Financial Planning is about creating a long term plan to ensure your lifetime goals are met through clever management of your finances. By creating a financial plan you can track your performance and make adjustments to ensure you are on target to meet your goals. Financial Planning is a life time commitment and the process includes continuous reviewing but the rewards at the end are worth it to have a good retirement. The Process of Financial Planning List down your personal goals (i.e. Purchase a family home create a educational plan, setup a retirement plan, buy a holiday home) What is your Current Financial Position (Income, Expenditure, Financial Commitments, disposal income, renting, paying a mortgage etc) Create a Financial Plan (Begin to put in place a realistic time frame for each of your financial goals, perhaps break them down over Short term 1-5 years, Medium term 5-10 years and Long term 10 + years Implement the Plan (Start your plan immediately, don t wait as the longer your leave it the less time you have to achieve it) Reviews (It is important to review your plan regularly to ensure you are on target and more importantly if you are not on target you can adjust your plan quickly) Why do I need a Financial Plan? A financial plan will ensure that your future is more secure and will help you make clear decisive decisions about your finances with your personal goals in mind. It will help you to save for life events such as children s education, buying a holiday home and most importantly a comfortable retirement. Do I need a Financial Advisor? Financial Brokers add significant value to the lives of their clients. This is a fact. Some people can create, implement and management their own finances very successfully but it does take time, expertise and continuous commitment so others decide to engage the services of a financial advisor who will do the hard work for you for a fee. This service however can prove to be very rewarding in the long term because by working with a financial advisor it will ensure that your financial plan remains on target and is reviewed and adjusted accordingly to meet your personal goals but also to implement the changes and challenges that may happen throughout your lifetime to keep you on target to meet your goals. Research shows that consumers who have used a financial broker:
4 Tips to Creating a Financial Plan 1. Create a Monthly Budget Know exactly what money comes into and paid out of your household monthly only then you can start to make changes to your spending habits. Create a monthly budget and stick to it, allow for months when you have to pay for car insurance, tax, children going back to school, holidays, birthdays, Christmas etc. 2. Debt There are different types of debt short term and long term, short term debt like personal loans and car loans tend to be more expensive with higher charges than say long term debt such as a mortgage, therefore it is important that you pay off short term debt quickly. Before you decide to take out personal loans know your repayment and the cost of credit for this loan and also the interest rate you are on. Perhaps you will then decide that it is far more sensible to save for what you need rather than borrow. 3. Credit Cards Using credit cards can be addictive and sometimes we forget that this is real money and has to be paid back at usually very high interest rates, when you use cash it can be a good deterrent to put us off paying too much for something or make us realise that we need to save for this rather than just buying it there and then (i.e. holidays). Interest rates charges range from 13 23% depending on the APR on your card. By only paying off the minimum repayment monthly you will have higher interest charges so it is important to pay off as much as you can. Also there are additional charges for going above you limit, cash advances, foreign exchange fees, late payment fees, stamp duty etc so know what you are signing up to. 4. Savings & Investments It is very important that no matter how small amount that you save on a regular basis, because you never know when you will need additional money to pay for an unforeseen expense. Also the sooner and the younger you start saving them more likely it is that savings become part of your monthly budget. You should plan to save between 5 and 10% of your salary per month, set up a direct debit from your account to a savings account this will ensure that it is not forgotten about because all the other bills have to be paid. If you get a bonus annually it is a good idea to arrange for part of this to be put into an investment or pension. If you were to save 250.00 a month over 20 years you would build a fund of 99,724.59 after tax based on an annual rate of return of 5.1%. *These figures are estimates only. They are not a reliable guide to the future performance of this investment.
5 5. Retirement This is a daunting area but one of the most important areas of financial planning and should really start from the first day you receive an income to ensure that you have the best possible retirement that you deserve having worked hard all your life. There are so many types of pensions and pension providers on the market; this is why it is important to choose the correct one to suit your individual requirements and circumstances. By going to a Financial Advisor they will help you select the right product for you needs, they will know the market and the type of investments that would best suit you based on your risk profile and will help you decide on the best possible retirement plan for the future. Financial Planner is regulated by the Central Bank of Ireland, No C57761, Company Directors Brendan Kelly & Patricia Kelly, They will help you calculate how much you will need for retirement and by knowing you can then start to make contributions to a retirement plan. Retirement planning is a cost effective way of saving for your retirement as it offers tax relief on contributions at your marginal rate of tax. The percentage of your income you can get tax relief on for pension purposes depends on your age. It increases as you get older. Your age % of your income you can get tax relief on Under 30 15% 30 to 39 20% 40 to 49 25% 50 to 54 30% 55 to 59 35% 60 or over 40% For every 100 of your income that you invest in a pension, the real cost to you after tax relief is less. It costs you: 80 if you pay tax at 20% 60 if you pay tax at the top rate of 40% When you retire you can take part of your pension fund as a tax free lump sum the amount will de pend on the type of pension you have and how much tax free lump sum you have taken from other funds, all other pension income will then be taxed. - 6. Insurances Protection Planning In life we also must be prepared for the unexpected events that life may throw at us such as losing a job, a loved one dying, becoming ill etc therefore it is important that we protect ourselves and our families. There are some insurance that we must have in place for example car insurance, mortgage protection but there are other insurances that we need to have in place to protect ourselves such as life assurance, home insurance, serious illness, health insurance, travel etc. When purchasing an insurance product it is important to know what you are covered for and that you get the best possible quotation on the market. On renewal of policies you should ring your financial advisor to make sure you are getting the best value for money never just except you first quote.
6 No matter what insurance policy you have you need to make sure that it is adequate to meet your current needs. Insurance should be reviewed as changing life events may mean that you need to alter your cover for example if you get married or have children you need to alter your life cover to reflect this. When something goes wrong you will need to make a claim, the first step is to check that you are covered by either ringing your Financial Advisor, Insurance Provider or checking the policy document. Remember you may be covered for the same loss under more than one policy for example if you lose money, camera etc on holidays you may be covered under your travel insurance policy and your home insurance all risk benefit. If you have a larger claim you may want to engage the services of an assessor who works on your behalf and will often negotiate with your insurance company to settle your claim. 7. Will & Estate Planning It is very important part of Financial Planning to have a Will in place. To create a will you will need to engage the services of a solicitor. A Will ensures that your estate is divided up according to your wishes. You should talk to a Tax Advisor or Financial Advisor regarding estate planning as they may be Financial Planner is regulated by the Central Bank of Ireland, No C57761, Company Directors Brendan Kelly & Patricia Kelly, able to put in place measures to reduce tax relating to inheritance in the event of your death. The regular review and monitoring of financial plans are crucial to ensuring success. 8. Review The key to Financial Planning is reviewing your plans to make sure you are on track to meet the goals you have set. A review allows you to make any adjustments to your plans to keep you on target or adjust your goals to suit your current financial circumstances. Financial Planning Summary People think that financial plans are for people with a lot of money but this is not true, financial plans are for people of all income levels. Studies show that people who have a comprehensive financial plan and what I mean as a comprehensive plan is one that covers savings and investments; planning for retirement, education, emergencies, major purchases, and other financial goals; and insurance needs are far more likely to reach their personal goals that people who do not have a plan. If you start saving in your 20 s you don t have to save as much, the longer you wait the more you have to save to reach those goals, the more time investments have to grow the less time money you save to reach those goals. Brendan Kelly, MD Financial Planner