Financial planning is crucial when it comes to your money. The first step in financial planning is doing a budget. This can help to ensure your wild money spending ways are kept under control by encouraging you to save for the future.
The next step in financial planning is to set up some money goals.
Ask yourself, for example, where you want to be financially in one month’s time, in a year’s time and in five years time. Stick to this, and you could see your wealth grow.
If you’re looking to grow your wealth through direct property, shares or through superannuation, you may need to enlist the services of an expert in financial planning, such as Switzer Financial Services.
A good financial planner can assist you in making the most of your money by showing you how and where your money can be invested to maximise your returns within a reasonable tolerance of risk.
They can also help you set out some long term and short term savings goals.
Some people don’t want to pay for help because they think it’s too expensive. However, getting help could potentially take your wealth to heights it would never have reached had you tried to do all this financial planning on your own.
Financial planning: keep this in mind
There is, however, an issue people need to be aware of before they take on the services of a financial planner. This relates to how financial planners are paid for their services.
At the moment, most financial planners are paid a commission for products they sell to clients. This creates a conflict of interest, which may cause you to doubt the ability of the financial planner to look after you money matters.
A financial planner may choose one product for a client over another because it pays the most commission and not because it is necessarily in the client’s best interest.
The financial planner may then receive a trail commission for the period the client is invested in that product. The financial planner continues to receive payment, even if no advice or assistance is provided to a client after the sale of the product is completed.
Many financial planners say they use a fee for service model and don’t accept commissions. Instead, they refund the commission to the client. If a financial planner says they charge a fee for service, ask them to spell out what this means.
A fee for service could mean the financial planner will take a percentage of the amount you invest. This is called a percentage based fee. So, if you invest $500,000 and the financial planner takes three per cent of that, for example, they will make $15,000. The conflict of interest arises from the fact that the percentage based fee for service model encourages financial planners to recommend you to invest more so they make more money.
In fact, if you don't have the money to invest, some financial planners may encourage you to borrow. This is what happened with Storm Financial: people put all their savings on the line and borrowed against their homes to buy managed funds recommended by Storm based on shares. As a result of the Global Financial Crisis, these people are now left with large debts and in many cases they have lost their family homes.
Tips for financial planning
To help you grow your wealth and get your money life in order, take a good look at your financial planning.