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How to create a financial plan for wealth building and security

money falling

Creating a financial plan might seem like something you say you’ll do when ‘I’m older.’ However, I’m sure there will be many forty-somethings wishing someone had advised them to invest just £20 a month since their 20s. They could be sitting on a nice little nest egg now. But that doesn’t always seem achievable. “No one does it as we’re caught up in being young and maybe living hand to mouth,” says Independent Financial Advisor, Kasie Della-Rumball. The good news is that it’s not too late to start, whatever your age. A solid financial plan can help you build wealth and future security.

Here she shares how to start creating a financial plan from scratch, creating financial freedom, investing, and managing debt.

The importance of financial planning

But do you really need a financial plan, and why should we make it a priority?

If you can’t rely on great windfalls, inheritance, winning the lottery, or a huge pension fund, having a financial plan in place is a safety net for when you can’t work or for later in life when you want to retire, or as Kasie describes: “It’s your get out of jail free card for things that will happen in the future.”

If you’re self-employed and ever need to take time off or if you just want to feel secure about your future, knowing you have a plan can be a big comfort.

“In modern society, we’re so overwhelmed with everything we’ve got to do that sometimes financial planning falls by the wayside. The safety nets that used to come with having salaried jobs: final salary pensions, all the planning that used to be put in place by the government or by your company to help you in the future, has in many cases, disappeared – and it’s probably going to get worse, not better,” warns Kasie.

What does a financial plan entail?

“Financial planning can encompass a whole range of things. People do naturally  associate it with investing, and products are a part of it. But it’s taking you as an individual or as a family and trying to ensure that what you want to achieve and happen in the medium to longterm, we’re putting in place for you,” Kasie explains. 

“It’s not something that’s done once… As we know, things can change quickly. Your relationship with your financial planner is organic. What we’re here to do is adjust the programme every time things adjust in your life… Things have to be fit for purpose at every stage of your life and if you have a good financial planner and one you communicate with, that’s exactly what should happen.”

For some people, the idea of financial plan is daunting. There is a lot of jargon, which can lead to a fear that they may not understand what they’re being told. Financial illiteracy is not uncommon. We are rarely taught about budgeting, taxes, and personal finance management in school. Yet, having a basic knowledge of finance is a ticket to making better decisions for your future. There is also a fear of getting honest about their financial situation. 

Whatever state your finances are currently in, there is reassurance and a sense of freedom in understanding and making a plan.

What is Financial Freedom?

You might hear the phrase financial freedom a lot. According to Kasie, there are two components. 

Financial literacy – understanding what’s what. “There are a lot of people who do not understand financial terms. If they’ve got any financial products or savings, they don’t always understand what they’ve got. Ordinary people feel they don’t have autonomy over their money because they believe the vocabulary is beyond them. They think they have to outsource it, which often, to optimise it, they should. But where financial mistakes are made is when someone puts their faith in somebody who they think knows much more than them. To be financially free is to understand exactly where you are and understand what’s going on at any stage in the game.”

• Financial Security. For Kasie, financial freedom also means not running out of money at any point and being financially independent. “You don’t want to be worrying about whether your card is going to be declined.” She sees a lot of financial trauma when people have anxiety about their money. “Their default is to not deal with it. To take people out of that fear and understand finances without the fear factor is part of financial freedom.”

couple financial planning looking at bills
Photo: Mikhail Nilov

Creating a financial plan from scratch

If you’re wondering where to start, these steps will help you put a basic plan together.

Do an audit of yourself

Get honest. Get the naked truth about where you are financially in terms of debt, savings and income.”Sometimes it’s a little bit scary. It’s one thing starting from zero but some people are starting from less than zero. They’ve got debt, they’ve got credit cards, a mortgage, car payments – and you don’t want to look at that stuff,” Kasie says. 

Make your debts manageable

When you’re starting with a lot of debt, Kasie says, “You need to start looking at the high interest payments first. Even if you’re  investing just £25 a month, the likelihood is, the return you’re getting is unlikely to be more than the interest you’re being charged.  Pay down high interest debt first… It’s probably unlikely that people can live without any form of debt at this point but with things like high interest credit cards – let’s get those down.” 

Build an emergency pot

 Kasie recommends always having a slush fund of a minimum £1000.  “Really, it needs to be enough to cover you and your family for about 3 months. 

Look to the future

 “When you’re in a position where you’ve protected yourself against worst-case scenario in the short term – then look at where you want to be,” says Kasie. There will be several factors that will influence your priorities such as what country you live in and what tax band you are in. When you know the position you are in financially and your future aims, you can see what the shortfall is.

Look at your lifestyle

 If you find you have quite a big gap between where you are and where you want to be, or what you need for retirement, it is a good idea to look at your lifestyle and outgoings. This can be an unpopular part of a financial plan as it may mean curtailing some spending and cutting back on luxuries. “You don’t want to find you have a lifestyle that costs £30k a year and realise your pension pot will run out in four years,” says Kasie. “No one wants to be in a financially dependent situation.”

Maximise your allowances

 Kasie suggests looking at all the benefits available to you. There are potentially pensions and ISAs to take advantage of, especially if you’re a higher income earner. “Before you even get into investing, utilise all the tax advantages first,” she says. “The less tax you pay, the more money you have to put towards investment products that can get you growth that will go towards physically building your net worth.”

woman creating a financial plan
Photo: Mikhail Nilov

Planning when you are self-employed

Creating a financial plan when you’re self-employed can be a little harder due to the potentially irregular income. 

“It’s a little more difficult at the start to put a budget in place as you’re not sure from one month to the next what will happen. We try to plan for the worst-case scenario, the smallest income,” says Kasie.

She recommends looking at all the things you can tax deduct as a self-employed person and do some tax planning to make sure you’re making the most of the benefits.

If you feel less secure about paying for a financial advisor, she says there are financial coaches who can help provide some financial accountability, even if not specific advice.

If you have your own business, you will understand how important cashflow is to keep your business operating. But Kasie says this shouldn’t deter people from investing their money to grow their wealth.

“There is a misconception that you need to lock yourself into things. It goes back to bank accounts and needing to lock yourself in for so many years for a good rate. Once day to day finances are in control, it’s just a case of making sure you have enough liquidity. But that liquidity can be invested.”

There are investment platforms with shorter notice periods such as 30 days, or as low as 10-14 days. “Yes, you need some cash in the bank but if you want to liquidate what’s invested, things are more accessible these days,” says Kasie.

“There are certain portions of your wealth that you might want to keep on term deposits as fees might be cheaper and you may not need it for a few years. But that’s a discussion to have and there’s a misconception that you can’t get hold of your money – you just need to know where to put it.”

Investing and risk

With interest rates relatively low and inflation eroding the buying power of our money, Kasie says more and more people are being pushed towards investment. Investing your money is one way to try to make your money work for you and build your wealth as part of your financial plan. But you need to decide whether you are in it for the long or short term.

Investing involves taking on a certain amount of risk but Kasie says we need to think more about whether we are comfortable with volatility rather than risk. Markets go up and down but over the long term, she says you are more likely to gain. Are you prepared to hold tight and watch it dip? She says, “If you take away the anxiety of [your money] being gone forever, then you’re unlikely to lose. They way you lose is selling because of panicking when markets drop… 

Those who make money have the reverse reaction. Pro investors see markets dropping as things going on sale.”

Not everyone has huge amounts of money to invest, or is willing to risk losing anything. If you want to try investing smaller sums, there are robo advice platforms such as Wealthify, eToro, and Nutmeg. These allow you to select how cautious you want to be with your money and then they match you to a portfolio to manage your investment.

Whatever you decide to do with your money, making a plan for it is about building the future you want. Being proactive with your money is taking control of it and making it work for you.

Kasie Della-Rumball is an Independent Financial Advisor (IFA) and founder of Woman In Wealth, offering advice to other IFAs.

Based in Spain, she works as a private wealth manager, specialising in offshore investment and also in ‘female friendly’ advice, helping women to feel confident in seeking the services they need, using a financial planner and seeking trusted advice.

Find Kasie on LinkedIn
Instagram: @woman_in_wealth

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Dedicated to helping you thrive when you work from home, The Homeworker publishes articles that are designed to keep you healthy, happy, and more productive in work and life.

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Please note: any investment puts your capital at risk. We are not endorsing or recommending any of the products or platforms in this article. This article is for information purposes only and does not address the circumstances of any particular individual or entity. It should not be taken as financial advice.