ABC Of Financial Planning
– Back To Basics For Doctors

A little knowledge is a dangerous thing – and this is particularly true for personal financial planning. I have spoken to clients who have listened to finance podcasts and who thought they had a fairly good knowledge of financial planning but whose ideas were disastrous. The problem with having some knowledge is that you think you are able to make sound decisions on matters which affect you, not just now, but in 40 years’ time – and these can be very costly.

So let’s just start at the beginning – the ABC of financial planning, the foundations first, before we move on to more exciting things.

There are 6 areas of financial planning you should concentrate on:

1. Budget. What is your disposable income and how much of that should you be putting away?

There is no one-size-fits-all, but personally I’m on the theory of ‘make hay while the sun shines’.

• If you have a disposable income, put as much of it away as possible into your financial plan.
• If you have little disposable income, can your spending be cut back? Can you cut out some of the luxuries, such as having one foreign holiday a year if you usually have two or three? Is that really more important than buying the new business premises? Yes? Every little helps!

2. Debts. My pet hate is the over-used credit card. Please live within your means, don’t rack up credit card debt. If you have, make this the priority to pay off. Mortgages – they are okay, but just make sure you are on a competitive rate and that you have a solid plan to ensure the mortgage is repaid in the future.

3. Short term. This is where cash is king. Everyone needs a cash buffer. At a minimum I say 3x your monthly income should be left in cash for rainy day money. If you also have large expenses that you foresee in the next 3 years, then save this in cash. Be savvy on interest rates – it is always worth looking around.

4. Medium term. Do you have plans for 5-15 years’ time, such as, starting up the new business, or perhaps school/university fees, or buying the house in the country? If so, how are you going to afford this? The money tree? No. You will need to regularly save some of your income into a tax-efficient investment, that’s how. Put aside some of your budget for your medium-term savings.

5. You will retire. Some like to retire early, some late, but it is really important that you put a decent wedge of your budget towards retirement planning and start now! It costs a lot to retire. Say you retire at 65 and want to live on an income of £50,000 in today’s terms. Life expectancy is rising so it is likely that you will live until you are 90. Well – that’s £1.25m you will need for retirement. Now don’t worry, I know that sounds a lot, but by starting early, being savvy on how you invest and what vehicle to use, will really help you grow a tax-efficient money pot that you can live on once you hang up your guns.

6. Finally, it is all very well saving into these vehicles, but if something went wrong and you were unable to work, your income would go, and if you don’t have an income how are you going to live within your means and do any of the above? The same applies if you had a critical illness or, even worse, if you were not around anymore and left your family without sufficient means to maintain their standard of living. Insurance is boring and dull but it is incredibly important. None of us are Superman and we need to ensure that our health, family, debts, and income are covered if something were to happen to us.

So there is it – the ABC of financial planning, the foundations of the building. Get this right and you will be rock steady going forward. It will also mean that everything I say going forward makes slightly more sense!

The first steps:

• act NOW,
• have a look at your budget,
• prioritise your goals, and
• start saving.

As always, these are just guidelines and not advice. If you would like to have a chat about your situation feel free to contact me direct.