Easy financial planning in just six steps

Growing up, all I ever wanted to do was earn my own money, spend it on whatever I wanted to, and have the freedom to spend it as I deemed fit. It was not long before I found myself in a heap of debt and suddenly payday could not arrive quick enough. I had no plan, no financial goals, and I did not have any safeguards in place that could protect my earning potential, should anything happen to prevent me from earning an income and repaying my monthly debt.

Unfortunately, most of us might still be in this situation. According to a study done in 2021, the average global consumer debt is US$93 000, which is roughly N$1 534 500 per year. The question is, how do we solve this global problem? The answer is, there is no quick fix, but you can start by taking the first step to financial freedom with financial planning.

Let’s start by defining what financial planning is and why it is important.

Financial planning is the process of taking a comprehensive look at your financial situation and building a specific plan to reach your goals.

Good financial planning should therefore include details about your cashflow, savings, debt, investments, and estate planning. It’s important to note that financial planning is an ongoing process and having a financial plan will help reduce financial stress in your life.

Why is financial planning important to you? As with everything in life, a plan is key to remaining on track toward a specific outcome. Having a sound financial plan helps improve income management, debt management, guides investment decisions, improves your return on investment (ROI), protects you against inflation, and assists you in having a well-guarded retirement plan.

In a previous article by Stefan Stander, dated 10 August 2022, he discussed the importance of getting sound financial advice and doing so from a personal financial adviser. This article subsequently digs deeper into the importance of sound financial advice and how to pick your personal financial adviser.

When you decide to consult a personal financial planner, you have taken the first step towards financial freedom. There are a further six important steps to effective financial planning, and by following them, it will ensure that an adviser provides a sound financial plan to customers.

1. The first step is to establish a relationship with the customer. A strong and reliable relationship automatically instils trust between the customer and their personal financial adviser. This forms the foundation of the financial plan and starts the journey towards the financial freedom the customer seeks to achieve.

2. Secondly, the personal financial adviser must gather all the information about the customer and determine the customer’s goal. Without a comprehensive understanding of the customer’s circumstances and their different financial objectives and needs, it will be difficult to draft an accurate financial plan. This information needs to be updated regularly.

3. The third step is to use the information collected in step two to critically analyse and evaluate the customer’s current financial situation. This step allows the advisor to understand the customer’s current financial situation and identify the shortcomings.



4. Only after completing steps one to three, can you take the fourth step. This step is based on the development and presentation of the financial plan, emanating from all of the information gathered and goals vs. needs as determined above. During this stage, the adviser has the opportunity to help the client understand the different risks that are involved in obtaining his or her financial goals and help choose the best possible strategy for obtaining those goals by making recommendations, which should place the customer in a position to make an informed decision and eventually review the financial plan until the customer is satisfied.

5. Step five is the implementation of the recommendations of the financial plan. Once the customer has accepted the financial plan and recommendations presented by the personal financial adviser, the financial plan can (should) be implemented. During the fifth stage, a customer should decide on how to implement the financial plan, and whether the customer requires the personal financial adviser to carry out the recommendation or just advise and coordinate the process.

6. The final step in the financial plan involves reviewing and monitoring the results. Continuous engagement between the customer and personal financial adviser will ensure that any deviation from the plan will be addressed immediately. A close-regulated relationship and open and honest conversations regarding the financial plan will allow the relationship between the personal financial adviser and the customer to prosper, which is vital since this whole process is based on trust.

In light of the above six steps of financial planning, a customer should be able to see the gaps, or shortfalls, in their current financial plan. It can be that a customer has insurance or savings in place that do not efficiently contribute to their financial needs or objectives. Customers should, at the end of this article, approach a registered personal financial adviser and review their current financial plans.

Personal financial advisers should put a customer at ease when assisting them in drafting a financial plan. With adherence to the above steps, the personal financial adviser should be able to assist the customer reach their goals, as well as educate the customer on the necessity for each and every recommendation in the financial plan.