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Financial Planning is a process, not an event

When meeting with a potential new client I make it clear that I consider financial planning to be a process and not an event.

The construction of a financial plan underpinned by a lifetime cashflow makes many assumptions, so to suggest that the future will look exactly like the plan is unrealistic – so what is the point of the plan you may ask?

The point is that the plan gives the best guesstimate of what the future may look like with the information available today, it is not a prediction but a guide. However, the assumptions need to be sensible.

Once the plan is set up it should be reviewed on a regular basis as “the only constant in life is change”. This gives the opportunity to see if the initial assumptions made are still valid. In effect each year we replace a year of assumptions with a year of reality as we live in a world of seemingly constant legislative change and so the plan needs to reflect the current taxation rules, pension changes, etc.

It’s a bit like taking a car journey from say Somerset to Scotland. Initially you consider which motorway to use and as you approach the destination which specific ‘A’ road to take. In financial planning this is like building a fund for retirement and then comparing the various income options closer to the date you actually intend to stop working.

The alternative is not to plan at all – to continue with the car analogy it’s a bit like setting off with no route planned and hoping to arrive at your destination.  If we plan for car journeys why leave such an important matter such as retirement to chance?

For me one of the most rewarding changes to model is when my client wants to see what effect a major change may have for example, stopping work earlier or spending more money on holidays – when this happens it tells me my client is really engaged with the planning process.

This is why financial planning is a process and not an event and why regularly reviewing and monitoring a plan provides in my experience, peace of mind and reassurance.