FINANCIAL PLANNING

 

The Importance of Financial Planning

 

Since the late 1980s the importance of financial planning has been recognized by New Zealanders and in particular by wealthy families and individuals and in the past 15 years or so, many middle class New Zealanders have employed Professional Financial Planners to assist them with their financial planning.


What is Financial Planning?

 

In simple terms it involves determining where you are now financially, what your objectives are for the future and assisting you to achieve those objectives.


Principles of Financial Planning


  • Before embarking on an asset building program it is important to recognize that your assets need to be protected through being owned by the correct entity which is why many New Zealanders establish family trusts utilizing independent trustees. Asset building should then occur within the trust.
  • Investment funds need to be invested into different investments and markets (known as asset allocation or diversification) to protect the portfolio from investment volatility. The allocation of these funds should be determined by the ability of the client to take-on risk which is largely determined by their age, makeup, background and understanding of investment markets. The allocation will impact on the return achieved.
  • New Zealanders historically have had a "love affair " with "bricks and mortar" although it has been proven that well constructed portfolios of shares can outperform property investments.
  • The main advantages of investing in property are that you can borrow using the property as security and also obtain the tax advantages currently available.
  • Liquidity of investments is extremely important.
  • Budgeting has a role to play.
  • We are all getting older and all New Zealanders should strive during their working years to build an assetbase which will be of sufficient size to generate sufficient income for them in their retirement.

The Planning Process

 

  • Collecting data relating to your assets and cash flows.
  • Exploring estate planning issues and determining and establishing the protective "vehicles" e.g. family trust, company etc. You will need for the future and ensuring that you have an effective will and enduring powers of attorney.
  • Determining future cash flows and how they are to be captured to build your assetbase.
  • Ensuring that you have adequate insurance cover over your life, income, properties etc to reduce the risk of losses occurring.
  • Determining your objectives and quantifying them by cost and timeframe.
  • The preparation of a strategic plan which will become a reference document for the future.
  • Building your asset base which will assist you to achieve your objectives.
  • Frequent follow up to "fine tune " your planning top ensure it is working correctly.

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