Financial Planning and Advice
As we make our journey through life our financial needs and objectives will change. It is important to identify our hierarchy of needs and have an adaptable Financial Plan, to help us meet these needs.
In our early working years, we generally have income, and no financial responsibilities or commitments. We may wish to save for a car or a holiday or simply need help in budgeting for our living expenses, but as we get older our needs and responsibilities change, when we meet our partners and have children or others who are financially dependent on us.
Most of us will have more financial goals than our current resources permit us to achieve and we have to prioritise our goals so that we can save for them systematically, until each goal is achieved. As we satisfy each level of goals, we can concentrate on the next level and ultimately achieve of financial dreams. Our financial objectives and dreams should be realistic and achievable based on our resources.
The pyramid below is an illustration of our Financial Hierarchy of Needs and it is based on the well known concept of Maslows Hierarchy of basic needs namely Physiological, Safety, Social, Esteem and Self Actualization.
The basic human financial needs can be broken down in a similar way, namely Survival Money, Safety Net, Financial Freedom, Gifts and Dreams.
Survival Money includes what you need to live on to make ends meet, it includes food, clothing and accommodation costs (rent or mortgage). Survival Money also includes an emergency fund which is needed to meet unexpected costs as they occur, such as losing your job or the cost of fixing a car or minor home repairs. Your emergency fund should ideally be equal to about six month of your living expenses. This fund should be readily accessible such as an on demand deposit account.
Your Safety Net is about helping you deal with the unexpected things that can happen over your lifetime, and protecting what extra money and assets you have accumulated. Most people have general insurance to cover their physical assets such as your home or car, but it is even more important to protect the person that has generated these assets, you. A good safety net can be provided by ensuring that you have the appropriate level of health insurance, income protection and life assurance.
Financial Freedom comes from having excess funds after you have satisfied all your basis needs, and created a safety net. This is the money that gives you enjoyment and fulfilment, such as family holidays, a new car or saving a deposit for a new or home. Typically this money will be saved over the medium term, in low to medium risk funds.
As you satisfy your basic needs, you develop a need or desire to provide for loved ones, and even causes that you care about, such as charities. The most common type of Gift money, is in providing a fund for your children such as their education, a deposit on their first house or to leave a reasonable amount of an estate for them. These funds can be built up over time and invested in long term savings and investment products. Many people will use life cover policies to supplement their estate to provide an inheritance for loved ones. People with substantial estates may wish to consider taking out a Section 72 Life Policy, which is a special insurance policy that is designed to discharge Inheritance Tax.
Having satisfied your basic needs, you can then concentrate on building sufficient funds to help you achieve your Dreams. This involves the kind of lifestyle that you wish to live now and in your retirement. To achieve these dreams you will need to build a large pot of money, and it will generally include your pension pot, savings and possibly income generating assets such as rental property. As you grow older your income will decrease and you will need to ensure that you have sufficient funds to dip into to provide a good standard of living, and provide for expenses such as a family wedding, medical bills, new cars and regular holidays etc.
Having a structured approach in prioritising your goals will help you to provide a portfolio that meets your needs now and into the future. It is important that you meet your lower needs first before tackling your higher needs. Whilst it is not possible for most people to build a large enough fund to meet all their needs, however the use of insurance products such as income protection and life cover can greatly reduce the amount of money needed to fulfil your needs, and you can build up these funds over your lifetime by prioritising your spending.
At MDL Financial Consultants, we will help you identify your financial goals and put in place and suitable plan to enable you to achieve these goals. Through our regular review process we will modify your plan to reflect changes in your circumstances, and keep you on track to achieve your goals. Our review process is what we like to call the Three World Review, taking into account what is happening in your world (your individual circumstances), our world (changes in investment funds and products), and the world (economic factors).
Call us today to arrange a meeting with one of our qualified financial advisors.