Beyond the Numbers – A Holistic Approach to Financial Planning

Financial planning is no exception – it’s fairly standard to seek financial advice after a major life event or where something has gone wrong with your existing investments.

But looking at your finances (and in fact, your lifestyle) holistically can provide a better chance of achieving your goals and improving your quality of life. In this guide, we explain the main steps involved in holistic financial planning and how this can benefit you.

What Would You Like to Achieve?
Holistic financial planning does not start with products or performance charts. To start creating your plan, you need to think carefully about what you would like to achieve.

You may want to think about some short- and medium-term goals first, for example, things you would like to achieve in your career or personal life.

Retirement is an important goal, but it’s also a complicated one. You don’t need to overthink it at this point – having a rough idea of when you would like to retire and what constitutes a comfortable income is enough to get started, as you can fine tune the numbers later.

It’s a good idea to visualise your goals – where are you, what are you doing, and how does it make you feel? This can help to keep you motivated, as well as filtering out ideas that don’t appeal as much as you thought.

To be included in your plan, your goals should be SMART – Specific, Measurable, Achievable, Relevant and Time-bound. Making your goals tangible can help to keep you on track.

Where Are You Now?
One of the reasons to start with your goals is to keep you motivated during the next stage, as this is where the work begins. To start progressing towards your goals, you need to have a good idea of your current financial situation. This means gathering details of your:

• Salary, business profits, dividends and any rental income
• Details of your bills, as well as both essential and discretionary spending
• Cash balances
• Investments (including rental properties if applicable)
• Pensions
• Mortgages
• Loans and Credit cards
• Insurance

If you choose to work with a financial planner, they will be able to do some of this for you and will guide you on the rest. If you decide to do it yourself, setting up online access to your accounts is the quickest way. Where this is not possible, a pro-forma letter or email to each provider is another option, and could save several hours on the phone.

Once you have all of the information, create a list of:

• Income
• Expenditure
• Assets
• Liabilities
• Insurance

This is the start of your financial plan.

How Can You Achieve Your Goals?
At its most basic level, financial planning means deciding how much money you will need in the future, and what actions you can take now to achieve this. The amount you have available to achieve your goals will depend on the following:

• The current value of your assets
• The timeframe of your goal
• How much you can save or invest between now and then
• How much investment risk you take

While your current assets are a tangible fact, the other three variables are all flexible. Depending on your priorities, you can adjust your timescale, contributions, and investment risk to arrive at the optimum solution.

Market volatility and inflation will also affect your plan, but these are outside our control. We deal with them by making assumptions about long term averages. For example, 5% might be a reasonable ‘real return’ (net of inflation) to aim for, but in reality, growth could be much higher or lower (or even negative) in any given year.

A financial adviser can create a cashflow plan for you, or you can create a model yourself using Excel or an online calculator.

Putting the Building Blocks in Place
Looking at your financial products in isolation is unlikely to lead to the best outcome and is not in the spirit of holistic financial planning. For example, you might be focused on your pension as a means to fund your retirement when it might make more sense to draw on other assets first. Holistic planning means getting the various parts of your financial plan working together efficiently.

A holistic plan will include the following:

• Budget planning to balance your income and expenditure.
• Cash management, ensuring you have enough to deal with emergencies and short-term spending.
• Financial protection, including life insurance, critical illness cover, and income protection.
• A plan to deal with debt in the most efficient way.
• An investment plan which aligns asset allocation with your risk profile and goals.
• Retirement funding and decumulation strategies.
• An estate plan to ensure that more of your money goes to those you intended.

How to Make Your Plan Even More Efficient
Once the main components of your plan are in place, there are some additional things you can do to improve your finances even more:

• Invest tax-efficiently, for example, by using your pension and ISA allowances.
• Carefully plan any withdrawals to minimise tax and exposure to market volatility.
• Aim to reduce charges on your investments where possible.
• Diversify your investments to avoid too much concentration in any one area.
• Learn about investor biases and behavioural finance to avoid making mistakes with your money.
• Review your plan at least once a year to make sure you are still on track and make any small adjustments required.

A holistic approach to financial planning can help you feel at ease with your money. This not only benefits your finances, but also your general wellbeing.

Please don’t hesitate to contact a member of the team if you would like to find out more about holistic financial planning.