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Wealth v strategy: Why a financial plan is essential

by RPG Chartered Financial Planners

Building wealth without a financial plan may be like searching for a destination without a map. You might miss the most efficient route, take an unnecessary detour, or miss your intended target altogether. A clear plan could be essential for helping you reach your goals. 

If you’re simply accumulating wealth, your assets don’t have a clear structure. Seeing the balance in your bank account rise can be comforting, but you’re taking a passive approach. 

In contrast, with a financial plan, your assets have an intentional structure designed with your goals in mind. As a result, the decisions you make are deliberate. 

If the value of your assets is rising, you might assume you’re on the right track, but creating a financial plan is often still valuable. 

Why a tailored financial plan matters

1. Looking beyond the value of assets could paint a clearer picture

An increase in the value of an asset can feel like you’re on the right track to reaching your financial goals, but the number is only one part of the information you need to build a full picture.

Imagine you’re reviewing your pension and whether you’re on track for retirement. Seeing that you have £300,000 in your pension might feel good. However, that figure alone doesn’t tell you what income you might receive when you retire or when you’ll be able to step back from work.

A financial plan can help you understand what your assets could mean for your lifestyle now and in the future. It could also help you identify potential gaps and provide an opportunity to close them. 

2. A financial plan may bring together multiple assets 

One of the challenges of simply focusing on wealth is that you might view each asset in isolation. Often, you’ll need to bring together multiple assets to gain a clear idea of your financial health and what your options are.

Returning to the retirement planning example, you may use your pension alongside savings and investments to create an income. In addition, whether you may have debts, such as a mortgage, in retirement will affect the income you’ll need. So, if you only consider your pension, you may be missing essential details.

3. You could identify tax allowances and exemptions 

Working with a financial planner could help you identify appropriate tax allowances and exemptions that might allow you to get more out of your finances. 

Let’s say you’ve decided to invest £250 a month to support your long-term goals. Using a Stocks and Shares ISA could mean your potential investment returns are not liable for tax. Tailored advice might help you recognise how changes to the way you manage your finances could make them more efficient. 

4. A strategy might help you measure the impact of your decisions 

If you’ve not set clear goals and planned for them, it can be difficult to assess the impact of your decisions. 

Working with a financial planner to create a cashflow model could provide a way to visualise your finances and how they might change over time. You can use this model to test different scenarios, so you might see the impact of adding money to your pension compared to overpaying your mortgage.

It’s important to note that the outcomes of a cashflow model are not guaranteed, but it can provide useful insights when you’re making decisions. 

5. A clear plan could reduce impulsive decisions 

Another benefit of understanding the effect of your decisions is that it could reduce impulsive or emotional decision-making, as you’re able to see the bigger picture. 

Get in touch to talk about your financial plan

If you’d like support in creating a long-term financial plan, we’re here to help.

Please note:

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

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.

The Financial Conduct Authority does not regulate cashflow modelling or tax planning. 

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