Why is Financial Planning Necessary- Everything You Need to Know!

Saving for retirement, maintaining control over our expenses and income, preparing an inheritance, having a safety net in case of unforeseen events, achieving efficient tax payments, and saving for a specific goal are all difficult tasks to complete; however, they are made even more difficult if we do not have adequate financial planning.

When it comes to financial planning, it is neither more nor less than a compass, allowing us to know where we are and where we want to go, as well as suggesting the quickest route with the fewest obstacles to take us to our objective.

We are entirely incorrect in their assumption that financial planning is solely "for the wealthy." The reality is that those with a high net worth will have some requirements, while those with a low net worth will have to deal with others. Moreover, each is equally significant as the other.

Keys to hit!

Without a question, the most important step in any financial planning process is to conduct a thorough analysis of the existing circumstances as well as the objectives that must be attained. We must take into consideration the moment in which we begin saving for retirement, the age at which we would foreseeably retire, and the life expectancy after reaching that milestone if we want to plan for our retirement, for example.

Make your objectives clear and explicit. When we do not know what we are planning for, it is difficult to make informed decisions. If we do not carefully organize the various parts of the journey, we may arrive at our destination with our bag of supplies completely depleted or, on the contrary, discover that we have a surplus of food after having been hungry along the way.

Decide which method is the most effective for bringing our plans to fruition. As a result of the overwhelming number of options, goods, and information available, it is critical to take time to consider which option is the most appropriate for attaining our objectives. Inflation, tax efficiency, the merits and disadvantages of each product, our financial profile... are all important considerations to keep in mind!

Adaptation is also essential. We change, as does our heritage, and the conditions in which we live do not remain unchangeable either. At different stages of our life, we may require different things, and it is not enough to just design a master plan on paper and hope that everything goes according to plan. We will almost certainly encounter rocks that must be avoided, as well as cut bridges that will cause us to take a detour on our journey.

Is retirement a necessity?

We'd all like to be able to relax. Although some people will do it with less money than others, and some will do it with significant assets, who wouldn't want to take a well-deserved holiday after years of hard work in order to devote their spare time to enjoy themselves? Think about it: when it comes to saving for retirement, we may categorize the process into three distinct phases!

Early accumulation phase: This is the beginning of the accumulation phase of savings, during which we begin to realize that retiring means much more than simply ceasing work and that it can mean a change in our income level, making it necessary to put in place a system that allows us to supplement the public pension in order to maintain our standard of living. 

Although this is not always the case, because the time horizon is so long, we can often afford to take greater chances at this point.

A phase of capital accumulation and preservation: The primary goal at this point is to consolidate the savings obtained in the previous stage, which will need making modifications to our portfolio and the degree of risk we are willing to accept in order to do this.

Decumulation Phase: We will need to employ the money that we have collected throughout the previous two phases during this last step, which is called the decumulation phase.

What, when, and how much to Save?

We've previously stated that everyone, in some capacity, is required to engage in financial planning activities. However, depending on some criteria, such as the number of assets, their type, and the complexity of the assets, the answer will be extremely different. If our assets are small and our objectives are straightforward, planning may be less difficult. The most essential thing is to get down to business; whether it's in an Excel sheet, an agenda, or with the assistance of a computer tool, we can acquire an accurate and effective guide.

The majority of the time, when an estate begins to grow in value and, more importantly, in complexity, it is advisable to enlist the assistance of a professional estate planner. There is no way we can know everything, and even if we could, it is often preferable to focus on running our business, which is what we are most familiar with, and assign other concerns to a professional. 

Please keep in mind that the time we devote to asset planning will be taken away from other things that we perform on a daily basis that may be more strategic in our professional activity. At times, financial planning outweighs the need to save for specific purposes: paying fair taxes and not others, analyzing the most efficient structure for our company, developing the succession plan, or optimizing investment returns in order to get the most out of our investment portfolios are just some examples of the tasks that a good financial advisor can take care of for us.