Reality Check

in many of our articles we have deliberately described FFP’s approach to investing as ‘real financial planning’. Unfortunately, although most financial advisers describe themselves as financial planners, very few are. The vast majority still provide advice on, for example, a pension in isolation, life assurance, mortgages or individual savings accounts (ISAs). While this can be very useful, in our view a more powerful, often life-changing, approach needs to be taken.

Before deciding which product is needed, a different starting approach is required. Real financial planners help people to identify the type of life that they would like to live now as well as the life that they might wish to live in 10, 20 or 30 years’ time. What sort of life do you wish to live when you are no longer working? Will it be a life that includes lots of travelling and, if so, how much will this travelling cost? At what age would you wish to retire? In retirement, for how long will you be active and young enough to do the things that you want to do? At what point might older age arrive, and what additional costs might this entail?

Crucially, ‘real financial planning’ involves identifying your own cost of living both now and in the future; using sensible assumptions around investment growth and inflation, how long can you realistically expect your money to last?

Most people don’t think about the cost of living in 20 years’ time. However, if you don’t think about this how can you be certain that you might have enough money to live on when you get there? If you are one of those people who spend every penny they earn, you might have to continue working much longer than you would wish to. ‘Real financial planning’ helps people to identify how much they need to save now so that they don’t have to keep working into their old age (we call it deferred gratification!). If you are a regular saver, ‘real financial planning’ might enable you to see that you could retire earlier than you had originally envisaged.

After having identified the life you want to live at some point in the future, ‘real financial planning’ then helps you to go from where you are now to where you want to be. Some of the pieces that you already have may still fit the picture of your future; there may be other pieces to the puzzle that need to be changed. A real financial planner helps during this part of the process as well.

Perhaps the most important part of ‘real financial planning’ is the ongoing advice. Checking on a regular basis to see whether your plan for the future remains the same; checking that you are making progress towards your goals. If you are drifting off course, a real financial planner helps you to make the necessary adjustments before you become way off track. Life is uncertain and many factors will be outside of your control. Nonetheless, being aware of change enables you to respond effectively.