Financial Planning - The 10 Key Questions to Ask Yourself

No matter what stage of career you've reached, or even if you've retired, there's a number of key questions that you should be able to answer to give yourself the confidence that you've addressed all the important areas of your financial planning.

So, today, I'm going to run through the key areas that we run through with each client to take a 'barometer' of their financial planning health.

Let's get started.

So, have you...?

1. Really thought about what you want for the rest of your life?

The dreaded 'setting goals' part...You've already done this for your career and no doubt in other parts of your life as well. So, now's a good time to take stock and think about how you want your life to look from now on. It may well be that it's in tip top order and nothing needs to change - the key is to go through this 'discovery' process with you and your significant other.

2. Fully organised your various assets and analysed how they will help you achieve your goals?

A major goal for all doctors and dentists is planning towards retirement. I presume you have other goals as well, ones that will require money to achieve? So, the question is: will what you're doing now with your finances allow you to achieve your most important goals? You may or may not know the answer to this. After all, it can sometimes be difficult to work out whether you'll have enough money for your future.

3. Completed a detailed expenditure plan so that you'll know how much money you'll need to live the life you want when you stop working?

How much money, after tax, will you need to fulfill all your goals once you've stopped working (and the salary/net profits have ceased)?

£3,000 per month?

£5,000?

£10,000?

What's YOUR number?

This exercise is crucial and it's what drives many of the financial decisions that you'll face between now and giving up work.

4. Created your own Financial Forecast to show when your 'Financial Independence Day' will be?

At what age COULD you give up work if you chose, even if you decided to continue working? Financial forecasting will allow you to see your financial future and help you make your financial decisions. Now, it probably IS possible for you to do this exercise yourself, maybe using Excel or a similar tool. However, I would advocate using the services of a financial professional that provides this sort of analysis. Not all do, so you may need to do some detective work. A good place to start is the Institute of Financial Planning's website.

At the site you'll be able to search for Certified Financial Planners (you'll find yours truly on there). Whilst that will not guarantee that they offer financial forecasting to their clients, there's a high probability that you'll find one that does.

The KEY benefit is that you'll be able to work alongside someone that is able to provide you with an objective viewpoint without having an emotional attachment (that inevitably you and your friends or family would have).

5. An overall written Financial Plan and Strategy to guide you over the years?

If you've taken the time to take action on the steps above, the KEY is to implement your plan. What action do you need to take to increase your chances of achieving your most important goals?

You'll probably find that there's quite a bit of work involved initially, but if you set things up the right way, the ongoing time required to keep your financial plan on track should be minimal, especially if you are using a Financial Planner to drive' the whole process for you.

Yes, ok, I'm obviously a little biased in my comments seeing as I earn my livelihood from working as a Financial Planner. But let me ask you a question.

How valuable is your time?

Looking at it another way, do you do your own accounts each year?

Exactly! So why spend hours each year trying to learn a skill that you can outsource to a competent professional who performs that role all their working lives?

Choosing the right Financial Planner is a very important decision. Take your time and make sure they are offering a long term strategic financial planning service, rather than a product retailing service (which actually may be fine if that's all you need).

And make sure you pay them a fee for the service they provide. If they only work on a commission basis, guess what will probably happen at some point in your dealings?

Think about it, how else would they earn an income if you don't buy a product? (that's not to say commission is bad - I just believe it should not be used to remunerate a Financial Planner who is providing you with a comprehensive financial planning service).

6. Made sure your Wills are up to date? (assuming you have one)

You do have a Will, don't you?

If not, this step is crucial. Let's say you've gone to the trouble of putting in place all the steps highlighted. By not taking this last step, all your hard work could be undone. Without a Will, you would die 'intestate' and your assets would NOT be distributed in line with your wishes.

So, contact a solicitor and get it set up! The cost is not too much and once you've done it you'll be able to tick another box on the road to creating your robust financial strategy :)

Whilst you're getting the Will sorted, ask the solicitor about setting up Lasting Powers of Attorney. In brief, These are legal documents and they provide consent to another party to act on your behalf to deal with your relevant financial matters should you be incapable of doing so.

7. Investigated how much risk you are taking with your investments?

If you have ANY money invested in traditional investment schemes such as personal pensions and equity ISAs, you owe it to yourself to take the time to analyse how risky your investments are. Sadly, some medics and dentists believe they have diversified their risk simply by holding a number of funds within their ISA/pension. But what if all these funds are equity based funds? It's entirely possible that they are taking too much risk with their money but may not necessarily have access to the right information to make better investing decisions.

8. Analysed how much risk you SHOULD be taking?

Even if you have a good grasp of how much risk your money is exposed to, do you actually know whether you should be taking more or LESS risk in order to achieve your goals? For example, if you're on track to achieve all your goals, you may be able to reduce the amount of risk you are taking and still remain on track.

9. Checked how much you are paying in investment costs?

When you invest any amount of money into 'mainstream' products, such as Equity ISAs and personal pensions, a certain percentage of your money will be taken in charges levied by the investment company/product provider. Typically, these may include:

sales/advice commissions initial charge for the investment (usually ranges between 0-5%) ongoing annual management fee other fund expenses (known as Total Expense Ratio) trading costs within the fund(s) Now, I appreciate that delving into all this may not overly excite you. That's fair enough. But just because you don't have the time/interest/inclination doesn't mean you should ignore it!

As with point 5, get it outsourced to a competent professional. The end result you're looking for is to check how much you ARE being charged and whether you are able to reduce these, where possible.

10. Recently completed a proper psychometric risk evaluation?

What makes you tick? Do you know why you've made certain investment decisions in the past? What influences your decision making process? Rather than simply judging your attitude to investment risk on a scale of 1:10, you need to go 'deeper'. There are tools available to help you understand how you make financial decisions and how to improve your ability to make these important decisions. Ask us, or your financial adviser/planner, for more information.

BONUS STEP

11. An Investment Philosophy to take you through good times and bad?

Does your investment portfolio consist of a collection of funds that perhaps were selected a number of years ago (and have not been reviewed since), or do you have an investment philosophy that underpins all your decisions?

It's probably fair to say that many medics and dentists will fall into the former camp, although that's often the case because their financial adviser/planner has not developed an investment philosophy of their own. Ask your adviser/planner (if you use one) what philosophy they are using for the management of your money.

So there we have it. If you've read this far then you're obviously serious about your financial future. Now all you have to do is take action and make it happen!