How to make a financial plan

Financial planning is the process of creating a long-term, coherent strategy to secure your financial future. Holistic in nature, it involves analysing your current situation, identifying your financial goals, and then creating a plan to help you achieve those goals.

Most people understand the importance of creating a financial plan. However, often they don’t know where to start or fully appreciate the difference a plan can make to their overall wealth. Small changes to the way you do things today can make a huge difference over the longer term. With that in mind, here are some tips on how to make a financial plan.

What is a financial plan?

A financial plan is a detailed document that outlines your current financial situation, your financial goals, and a strategy designed to help you achieve those goals. You can think of it as a roadmap for your financial future.

Creating a financial plan has many benefits. With a plan in place, you’ll have a better understanding of your finances, and a greater sense of control over your money. You’ll also have a better chance of achieving your financial goals as the plan will give you clearly defined steps that you need to take in order to reach both short-term and longer term objectives.

Some people ignore financial planning because they believe that a strategy they have devised for themselves is sufficient. However, if planning is done properly, it is a full time job for someone. Proper financial planning should incorporate saving, investing, cash flow planning, risk management, retirement planning, estate planning, tax planning, and more. The aim is to create a long-term, holistic strategy that encompasses your whole life, including your business activities. Sitting down with a professional planner will help to identify areas of your plan where you could significantly optimise your affairs to lead to much better outcomes in the future.

Start your financial plan by setting goals

The first step, when it comes to making a financial plan, is to identify your short-term and long-term financial goals. If you haven’t thought about your goals, how can you possibly achieve them?

Short-term goals could include:

  • Paying off any loans or debts
  • Home improvements
  • Paying for school fees
  • Buying a holiday home

Meanwhile, long-term goals could include:

  • Paying off your mortgage
  • Paying for university fees
  • Reaching financial independence and retiring comfortably
  • Passing on wealth to younger generations

Quite often, people do not ask themselves the right questions at this stage of the process. This is where a financial planner can help. Once you have identified your goals, you can create a plan to achieve them.

Planning for life events

In the early stages of the financial planning process, cash flow planning is important. This involves looking at your income and assets and balancing these against current and future expenses and liabilities. It can help you determine how much you might need in short-term savings to handle upcoming expenses, and how much you can afford to invest.

Of course, life doesn’t always go to plan. This is where an ‘emergency fund’ comes in. This is a pool of money that you set aside to cover unplanned expenses. By putting three to six months of living expenses aside for emergencies, you can protect yourself from unplanned financial expenses.

Consider how much you will need to retire

It’s worth pointing out that cash flow planning is not just effective for navigating short-term expenses. It can also be helpful for retirement planning and estate planning. For example, through a cash flow analysis, you can determine how much income you may need to sustain your lifestyle when you are no longer working and how much you will need to retire. Similarly, you could use cash flow planning to determine how much of your wealth should be retained in your estate for estate planning purposes.

Consider how you’ll build your wealth

Another crucial part of financial planning is developing an investment strategy. A robust strategy can help you build long-term wealth and create a sustainable income in retirement. At this stage of the process, you need to give some thought to your optimal asset allocation. This will have a major impact on your investment returns. The best assets for you will depend on your financial goals, capacity for loss and risk tolerance.

It’s sensible to develop an investment strategy that incorporates a range of different assets including stocks, bonds, and alternative assets (commercial property, private equity, hedge funds, structured products, etc.). Diversifying your capital over a range of different asset classes will reduce your risk levels and smooth out your long-term returns.

Once again, the help of a professional here can considerably improve and accelerate the process of building wealth. Once you have determined the level of return you need, a professional investment manager will be able to devise a portfolio that delivers this in the most optimal way possible. There are more questions you should be asking yourself other than ‘what’s the best possible return I could get?’ as this in itself is made up of many more factors than simply an absolute investment return.  To read more here, take a look at our investment management guide.

How to make a financial plan tax-efficient

It’s also important to consider tax when developing an investment strategy. Tax is the single largest drag on wealth, so it’s sensible to structure your investments so that you are investing in the most tax-efficient way possible. Tax-efficient investment accounts such as pensions and ISAs can help here.

The importance of a holistic financial plan

A financial plan should always be holistic and take into account all aspects of your financial life, including your business affairs. A holistic plan will give you a better understanding of your overall financial situation and help you feel more in control of your finances. It will also provide you with a framework for making better financial decisions.

How we can help you make a financial plan

If you are looking to create a financial plan, it’s a good idea to work with a financial planner who can help you develop a holistic plan that meets your individual needs. They will be able to help you clearly define your objectives, develop a robust investment strategy, minimise your tax liabilities, and put an estate plan in place.

At Bowmore, we have over 35 years of experience helping individuals and families develop financial plans. We can help you plan for upcoming expenses, create an investment strategy, uncover tax savings, capitalise on pension allowances, take steps to protect your assets from Inheritance Tax (IHT), and more.

To find out more about how we can help you create a financial plan, get in touch with us today.


PHONE 01275 462 469

Bowmore Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority.

The Financial Conduct Authority does not regulate Estate Planning, Inheritance Tax Planning or cash flow planning.

Bowmore Financial Planning Ltd is not regulated to provide tax advice.

The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.

The tax treatment of certain products depends on the individual circumstances of each client and may be subject to change in future.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. You should seek advice to understand your options at retirement.

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