Financial Planning: Explained

Oct 10 2021 | 2 min

Financial planning is a strategy to achieve financial goals based on your financial condition (savings, investments, cash flow and debt) and risk appetite.

What is Financial Planning?

Financial goals may entail short-, medium- and long-term goals. A comfortable retirement, for example, must consider your retirement age and the funds that need to be set aside during your working years, and whether you should consider life insurance in case your plans are interrupted by countless events. The amounts you set aside may in turn vary at different stages of your life, depending on shorter term goals such as children’s education, buying a house, reducing your higher cost debt, and the cost of insurance for health, life and casualty.

What Makes a Good Financial Plan?

The strategies in financial planning are countless, and every financial plan is unique. Good financial plans share common steps.

Setting financial goals

The first step toward financial security is to set short-, mid-, and long-term financial goals. Without goals and a clear plan, you’re likely to overspend and not have enough money when you need it whether it is for unexpected situations or retirement.

Calculating your net worth

The next step is to determine your net worth, which is simply the value of your assets minus your liabilities.

Retirement Planning

Plan for your retirement as early as possible by determining your retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying your sources of income, sizing your expenses, implementing a savings program, and managing your assets and risk.

Estate planning

Many people don’t like to think about estate planning, but this step lets you determine what happens to your assets when you’re gone and consider the tax treatment of your estate.

Investment Planning

Finally, your financial plan must consider growing your wealth while managing risk. Investment planning is about investing the money you set aside in assets that achieve the growth and income in accordance with your financial plan.

Your investment portfolio must be diversified. A diversified portfolio comprises non-traditional investments in alternative assets from different classes, sectors and geographies that behave differently under different market conditions optimizes reward against risk.

The Family Office would typically include opportunities in private credit, real estate and private equity in client portfolios to provide optimal risk-adjusted returns. Depending on the macroeconomic environment, valuations and prevailing investor sentiment, portfolio assets would be allocated to the most promising sectors, sub-sectors and geographies. Post-Covid, for example, real estate allocations in the U.S. shifted away from commercial properties in urban centers to residential multifamily suburban properties.

When Should I Make a Financial Plan?

It’s never too early to start financial planning. The sooner you decide your goals and start following a plan to achieve them, the more time you have to succeed.

What Makes a Good Investment Plan?

Your investment plan draws on your financial condition and risk appetite to achieve your growth goals. While investment plans vary depending on future goals, they do have common elements.

Assessing Current Finances

This first step helps you provide a clearer picture of how much money you can invest.

Profiling Risk Tolerance

Your risk tolerance is your ability to handle investment risk and determining your tolerance level helps in designing your investment plan. Calculate your risk tolerance with our Risk Profiler tool.

Establishing a Time Horizon

You time horizon is the period you expect to hold an investment until you need your money back, and is usually dictated by your financial goals. The longer your time horizon the more aggressive you can be with your portfolio and the longer your power of compounding works.

Seeking Professional Help

Whatever your goals, seeking professional help will help you avoid common mistakes and oversights. A trusted financial and investment planner designs your tailor-made financial plan around your life goals, time horizon and risk appetite.

The Family Office has been helping clients with financial planning for many years to fulfil their goals. Our experts will guide you every step of the way to help you secure and grow your wealth for generations to come. They design a custom-made investment plan and select the best investments in the most promising sectors worldwide.

Talk to our financial experts and learn about your financial and investment planning opportunities with the Family Office.

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