Financial planning

Financial planning is the process of meeting your life goals through proper management of your finances. Your life goals could include buying a home to live in, saving for your children's education, managing your debt or planning for retirement.

Financial planners use a six-step process to help you take a 'big picture' look at where you are financially and where you want to be in future. Your planner can then work out what you need to do now and in future to reach your goals.

The six steps of the financial planning process are:

  1. Gathering your financial data – such as details on your income, debt level, commitments, etc
  2. Identifying your goals
  3. Identifying any financial issues – or deficiencies between where you are now financially and where you want to be
  4. Preparing your financial plan – which will identify recommended investments and will address your attitude to risk
  5. Implementing your financial plan
  6. Reviewing and revising your plan – to ensure it stays up-to-date and relevant to the economic climate and your changing lifestyle.

Source and copyright: Financial Planning Association 2002

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Where do I start?

Think carefully about what you want to achieve. Write down your objectives. Then you can draft your personal financial action plan covering topics such as:

  • Budgeting – see where you really spend your money; it surprises many people. Keep track of your spending for a period of time; you’ll then know how much you really need to live on. State Super Financial Services Australia offers a useful budget planner to help you keep track of where you spend your money.
  • Insurance – adequate cover is vital; regularly review your home and contents insurance, life insurance and income protection insurance. Many of us can access cost-effective insurance through our superannuation fund.
  • Regular savings – one of the most powerful ways to create wealth is to save regularly; your discipline is rewarded in the long term. Consider saving a regular amount each pay period. Your budget will help to determine how much you can save. What you don’t see, you don’t miss. You may be pleasantly surprised how quickly your nest egg grows over time with the magic of compound interest.
  • Superannuation – it is one of the most tax effective investments available to you. It’s important you understand your scheme so you can maximise your final benefit. Find out what you may need for comfortable and modest retirement lifestyles under SUPER GURU at Association of Superannuation Funds Australia.

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Why should I see a planner?

Potential changes in superannuation, taxation and social security legislation can mean straightforward decisions result in unforeseen long-term consequences. This can be especially true in the transition from work to retirement. A financial planner can plan your financial future, helping you to avoid any pitfalls and traps along the way.

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When should I see a planner?

An expert financial planner can help with many different situations and planning issues.

Some of the most important times to speak to a planner include:

  • If your full retirement is 12 months or less away
  • If you face a significant change in your financial circumstances such as redundancy, switching careers or transitioning into retirement
  • If you receive a significant lump sum of money such as an inheritance or proceeds from the sale of a property.

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I will take a DFRDB pension; do I still need to see a planner?

Financial planning covers more than just your superannuation entitlements. Your full financial picture may also include your partner’s situation, other assets and resources, your future work intentions, as well as your retirement plans. So yes, even if you receive a pension for the rest of your life, it may still be a good idea to speak to a planner.

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How do I choose a financial planner?

It’s best to find a planner who is appropriately qualified, has the experience and knowledge to provide you with the service you desire, and you feel comfortable with.

Here are some tips to help you choose:

  • Ask if the firm your potential planner works for is licensed by the industry regulator, the Australian Securities and Investments Commission (ASIC)
  • Check if the firm holds indemnity insurance and is a member of a professional body such as the Financial Planning Association
  • Ask how long they have been in business and their research facilities
  • Understand how you will be charged; fee for service, commissions, or a combination of both? Different planning firms provide different fee structures.
  • Ensure the advice you receive will be professional and impartial.

Also speak to the Financial Planning Association and visit Money Smart.

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I'm happy with my pension; should I still see a planner?

Other financial considerations can apply, so it may be a good idea. For instance, most people must also make decisions about unused leave payments and lump sum savings. It may pay off to speak to an expert about these issues.

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What else do I need to know?

DFRDB publishes this information for your interest; it is of a general nature only, is not comprehensive and has not taken into account your personal situation or requirements. You should also consider any legislative changes which take effect.

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