According to experts, financial planning should consider monetary requirements in different phases of life. It should provide a holistic picture of the inflow and outflow of money. In addition, it should address risk appetite, emergency situations and long-term financial goals.
When it comes to the basics of financial planning, there are four major focus areas:
Investment planning: It involves developing strategies for asset allocation based on your risk appetite. Diversification of assets is a key constituent of financial planning to lower the risk factors to achieve your desired long term goals. To devise a systematic fund allocation strategy, one should work on developing an investment tracking system. There are many software available online that can help you keep track of your investments.
Tax planning: No one likes to give away a significant portion of his/her annual income as tax, when there are legal methods available to save taxes. The government encourages individuals to leverage tax benefits available on several investment instruments. The first step towards tax planning is to identify the number of taxes that you are liable to pay. Some of the most common forms of taxes are income tax, capital gains tax and inheritance tax. Tax planning strategies involve the smart use of offshore bonds, Venture Capital Trusts, Enterprise Investment Schemes and Individual Savings Account (ISA).
Retirement planning: A financial plan that does not guarantee a secured future after the age of 60 is not worth investing in. By investing in retirement plans from an early age, it is possible to lead a financially-secured life in your old age. Retirement planning should answer two basic financial requirements - standard of living and medical emergencies. SIPP(Self-Invested Personal Pension) are highly popular retirement instruments in the UK. SIPP investment is a UK-government approved pension scheme that offers tax benefits on certain investment instruments.
Personal Insurance: Individual and family insurance policies are also a crucial part of financial planning. Insurance policies offer financial security against unforeseen circumstances. With a host of insurance schemes available in the market, buying the most suitable insurance is a daunting task. You can consult an expert to understand your insurance requirements in accordance with your financial plan. Some insurance policies also offer tax benefits.
Financial Planning versus Financial Advice
Hire an expert for financial planning may be a good idea. For a majority of the population, managing finance is a complex subject. Hiring a good financial planning service helps you to understand your requirements in a better way and allocate your funds according to long-term goals. However, one must understand that financial advice is only a subset of the larger picture. Based on your needs, you may have to customize the plan to fit your life and goals in a better way.
Look for a financial planner who offers comprehensive consultation on all major aspects of fund allocation. Hire a financial advisor who is authorized and regulated by the Financial Services Authority (FSA), UK. Some service providers have business arrangements with financial instrument providers, which makes the process of investment easy. Discuss your financial goals and devise a strategy that you can follow in the long term.
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