Financial Planning: The Ultimate Guide 2024

Welcome to ‘Financial Planning: Your Ultimate Guide for 2024.’ As we embrace a new year, navigating the financial landscape can seem overwhelming amidst evolving markets and complex jargon. This guide is your beacon through the financial maze, offering clarity and insight into the world of finance and investing. We aim to empower you with knowledge, stripping away the complexities to reveal the essence of financial planning. Discover how financial planning can transform your life, understand the process, and learn the critical differences between financial planners and financial advisors. We’ll also shed light on the commissions and fees linked to these services. By the end of this guide, you’ll be equipped with the confidence to make informed decisions about your finances, paving the way for a secure and prosperous future. Dive into our comprehensive guide or watch our summary video for a quick overview. Your journey to mastering your financial destiny begins here

Table of Contents

Introduction to Financial Planning

This guide serves as your introduction to financial planning, offering a holistic approach to managing your finances and achieving your aspirations. Financial planning goes beyond mere transactions; it’s about comprehensively understanding your values, challenges, and life goals, even those not directly linked to money. It’s a strategy tailored to your unique circumstances, transforming money into a tool for realizing the life you value.

Unlike the conventional, product-centric financial advice model, true financial planning prioritizes your needs and aspirations over product sales. A genuine financial planner, unlike a product-driven advisor, focuses on creating a customized plan based on your lifestyle, ambitions, and concerns, with financial products being secondary. It’s akin to consulting a doctor whose primary concern is your wellbeing, not prescribing medication for a commission. In this way, financial planning empowers you with unbiased, impartial advice, steering you towards informed financial decisions that align with your personal objectives

Read Next: Why Fixed and Flat Fee Financial Advice and Planning really is the best way to receive impartial and unbiased advice to help you achieve your goals.

A Few Interesting Financial Planning Stats

  • According to a study by Vanguard, working with a financial advisor can potentially add about 3% in net returns to your investment portfolio over time.
  • A survey conducted by the CFP Board found that individuals who work with certified financial planners (CFPs) are more likely to have a comprehensive financial plan in place.
  • Many people underestimate the amount they need for retirement. Research shows that only 42% of workers have calculated how much they need to save for retirement.
  • More than 50% of adults do not have an emergency fund to cover unexpected expenses, according to reports.
  • Behavioral biases, such as loss aversion and overconfidence, can lead to poor financial decision-making. Financial planners often help clients overcome these biases to make more rational choices.

The Financial Planning Process

Understanding the financial planning process is key to developing a plan that truly reflects your life’s current state and future goals. This process, far from being a one-time event, is an ongoing conversation. It delves into various facets of your life, such as your relationship status, family dynamics, and the legal intricacies of your financial commitments. Especially crucial in relationships, open communication about finances plays a vital role, particularly when children are involved. The financial planning process typically involves multiple in-depth discussions, allowing your planner to craft a personalized strategy that aligns with your unique circumstances. This guide outlines the key steps involved in this thorough and thoughtful journey.

“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” Robert Kiyosaki

1.Understanding and Goal Setting

This crucial step involves getting to know you, your current situation, values, and future aspirations. It’s a continuous process that varies from person to person, requiring time and thought to gain clarity and build a customized plan.

2.Cashflow and Balance Sheet Analysis

A critical aspect of financial health, this step goes beyond tracking income and expenses. It involves a thorough understanding of your assets and liabilities, helping to optimize cashflow and improve your balance sheet. By evaluating what you own versus what you owe, a planner can assist in managing debts and growing assets. This process is integral to achieving financial freedom, regardless of your income level, and includes strategies for both increasing savings and making wise investments.

3.Modelling and Scenario Planning

This step involves detailed projections and various scenarios, taking into account your current financial standing and future goals. It’s about preparing for life’s uncertainties and opportunities, such as the impact of taking a sabbatical, starting a business, planning for retirement, or handling unexpected events like job loss or health issues. By considering these potential life changes, the plan becomes a flexible framework that adapts to your evolving circumstances, ensuring that your financial strategy remains aligned with your life’s journey.

4. Developing Your Customised Financial Planning Blueprint

After thorough analysis, your financial planner crafts a detailed, written plan. This blueprint includes prioritized goals and actionable steps, considering aspects like debt management, emergency fund creation, estate planning, and retirement planning. It’s about honest evaluation and strategizing, focusing on immediate needs as well as long-term objectives. The plan serves as a comprehensive guide, tailored to your unique financial situation and life goals, ensuring a holistic approach to achieving financial stability and growth.

5. Implementing and putting your financial plan to work

This stage, often referred to as ‘implementation,’ is where the plan becomes actionable. It may involve reassessing existing financial products and investments for suitability and cost-effectiveness, possibly leading to changes or new acquisitions. This step is tailored to your specific financial situation, whether it’s diversifying investments, updating wills, or optimizing tax strategies. A good financial planner will guide you through this process, ensuring that each action aligns with your overall financial goals and contributes to your long-term financial health and security. And the right advice may simply be ‘do nothing’ because you’re on track.

6. Ongoing Navigation and Optimisation

This final stage involves regular reviews and adjustments to your financial plan, ensuring it stays aligned with both personal life changes and broader economic shifts. Your financial planner plays a crucial role in this continuous optimization process, helping you navigate through various life events like marriage, job changes, or retirement. This ongoing engagement is key to maintaining your financial course and adapting to new circumstances, ensuring you achieve your long-term financial goals.

The Financial Planning Process
The financial planning process

Financial Planning Services

1. Cashflow Management:

This section emphasizes the importance of cashflow management for financial stability, regardless of income level. It discusses strategies like creating emergency funds, reducing debt, and improving spending habits. Free cashflow really is the cornerstone to achieving financial freedom.

2. Protecting against risk: 

Risk protection, including planning for life’s uncertainties like death, disability, and critical illness, is also covered, highlighting the role of insurance in safeguarding financial well-being. Inadequate risk cover can leave you/your dependents in a perilous financial position if the worst happens.

3. Retirement Planning:

 This part focuses on the significance of retirement funds, such as pension funds and retirement annuities, for financial independence. It discusses the advantages of diversifying investment strategies beyond traditional retirement funds, including offshore investments, for better flexibility and risk management.

4. Post-Retirement Planning: 

Delves into the transition from accumulating to managing assets in retirement, emphasizing the need for income-focused strategies like living annuities. The section also highlights the importance of adapting investment strategies in response to changing risk capacities during retirement

5. Investment Planning and Portfolio Management:  

 This essential aspect of financial planning involves decisions about where and how to invest to grow wealth and manage risks. It covers choosing a mix of assets like equities, bonds, real estate, and potentially alternative investments. The strategy includes considerations for both domestic and international investments, balancing portfolio diversification and tax efficiency. The ease of online investing brings complexity, making informed choices and understanding risks vital. Effective portfolio management aims to optimize returns while aligning with your financial goals and risk tolerance.

6. Estate and Legacy planning:

This section emphasizes the importance of a well-structured estate plan, starting with a valid and updated will. It addresses complex aspects like global investment considerations and strategies to reduce estate taxes. The planning process aims to ensure your wishes are respected, minimizing legal and financial burdens on your heirs. Legacy planning, particularly for larger estates, involves intricate strategies like charitable giving and family asset management, ensuring a smooth wealth transfer and minimizing family disputes.

7. Tax Planning and Optimisation:

Here, the focus is on integrating intelligent tax planning into overall financial strategies. It highlights the need for coordination between financial managers, tax specialists, and legal advisors to create a cohesive strategy. The section underscores the importance of leveraging tax deductions, optimizing capital gains tax liabilities, and using trust or company structures for wealthy individuals. This strategic approach ensures that tax considerations enhance, rather than detract from, overall investment and estate planning objectives.

8. Life Happens and Special Situations:

This section recognizes that financial planning is not static but needs to adapt to life’s unexpected events. From personal milestones like marriage or career changes to unforeseen circumstances such as illness, divorce or global economic shifts, the plan must be flexible enough to accommodate these changes. Regular reviews and adjustments are crucial to maintain alignment with your evolving goals and the external environment, ensuring that your financial strategy remains relevant and effective.

Financial Planning Services
The different types of financial planning services

The Difference between a Financial Planner and Financial Advisor

The distinction between a financial planner and a financial advisor lies in their qualifications, roles, and the culture of their firms. A financial planner, particularly a CERTIFIED FINANCIAL PLANNER®, undergoes a rigorous certification process, including board exams, and adheres to international standards. A financial advisor typically has a lower entry threshold, requiring basic qualifications and exams. However, the real difference often lies in the approach of their respective firms. Some may prioritize profit and sales over service, affecting the impartiality and quality of advice. Understanding the professional background and the ethos of the firm is crucial in determining the right financial guidance

What are Financial Planning Fees?

Financial planning fees can take various forms, and understanding these differences is essential for making informed decisions when seeking financial advice. There are three primary fee structures in the industry, with the first two being the most common:

Commission-Based: These fees are generated by selling risk products such as life insurance, disability insurance, or severe illness coverage. Advisors earn commissions based on the size of the premiums. While this can be lucrative for advisors, there’s a risk involved if clients stop paying premiums within the first two years, as commissions may need to be refunded. You should be cautious of advisors who aim to replace existing policies with new ones solely to generate commissions, a practice known as “churn.”

Investment-Based ‘Fees:’ This fee structure involves initial fees of up to 3% + VAT and ongoing advice fees of up to 1% p.a. + VAT. It’s important to note that the term “fees” can be misleading here, as these are essentially commissions. The ongoing advice fee acts as a continuous income stream, particularly attractive for advisors with a substantial client investment base. However, the correlation between the fee and the quality or quantity of services provided may be unclear. You should question what specific advice and ongoing services justify the fee, especially when charged as a percentage of assets under management.

Actual Fee Model: This fee structure is based on the amount of work and service provided. Fees may be calculated hourly, project-based (e.g., creating a financial plan), or a flat fee for ongoing services, payable at different intervals (e.g., quarterly or monthly). While fee scales can vary widely across the industry, experienced CERTIFIED FINANCIAL PLANNERS® may charge upwards of R1,000 per hour for their services.

The most transparent and equitable fee option, in our opinion, is the “actual fee” model (option 3). This model ensures that you pay for the specific work and services you receive, leading to a fairer and more transparent fee structure. In contrast, the assets under management model (option 2) may result in higher fees for people with larger portfolios, without necessarily correlating to additional services provided. You should evaluate whether the fees you pay align with the value and services you receive from your financial advisor. 

Should you work with a Financial Planner?

Should you consider working with a Financial Planner? If you’re serious about managing your finances and building wealth, partnering with a specialist or professional can provide substantial benefits. Even Roger Federer, an exceptional tennis player, relies on a coach to enhance his skills. In today’s digital age, a growing number of individuals are opting for a DIY approach due to the readily available information on the internet. While this can be positive, it’s crucial to evaluate the credibility of your information sources.

In an era where self-proclaimed experts can easily share their views on platforms like YouTube or TikTok, credentials and qualifications matter. Merely because a famous figure shares an opinion in the media doesn’t guarantee its accuracy or alignment with your financial goals.

The financial industry is known for its divergent expert opinions, whether it’s about market direction, economic outlook, investment choices, or the merits of cryptocurrencies. This cacophony of viewpoints is often referred to as ‘noise.’ Attempting to decipher and act on all of it can be overwhelming. Financial planning is about crafting a personalized strategy tailored to your unique needs and objectives, not following the latest trend or media pundit.

Working with a financial planner offers the advantage of a customized strategy designed to serve you. However, the greatest value might lie in their ability to address your behavioral biases and blind spots, particularly in matters related to money.

Research that Vanguard has conducted estimates that a good advisor can add value that equates to about 3% p.a. in net returns. Is that true, who knows?

Ultimately, the decision to engage a financial planner is a personal one, varying from individual to individual. Yet, having a trustworthy professional to rely on during both prosperous and challenging times is truly invaluable and well worth the investment.

Conclusion

In conclusion, this article has aimed to provide you with valuable insights into the world of financial planning. It serves as a comprehensive guide, offering information, education, and guidance on the various elements of financial planning. By understanding the intricacies of the industry, how it functions, and what to be aware of, you are empowered to make informed decisions about your financial journey. The ultimate goal is to help you view money as a powerful tool that can enable you to live your best life and achieve your long-held aspirations. Financial planning is not just about numbers; it’s about crafting a personalized strategy that aligns with your unique goals and needs. With the knowledge gained from this article, you are better equipped to navigate the financial landscape and work towards the future you desire.

Carl-Peter Lehmann
Carl-Peter Lehmann

Carl-Peter is a Director and Partner at Henceforward. He has worked in the industry for more than 20 years in different places across the world. He studied at Stellenbosch University, is a CERTIFIED FINANCIAL PLANNER®, and has a certification in Discretionary Investment Management. He has spent a large part of his career helping clients with global balance sheets and offshore investing.

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