Financial Planning – what are we planning for?

18 Feb 2016 | Articles |

What is the most important thing for you to get right in your finances?

Although the question may seem innocuous it is arguably the opposite – a truly difficult question for most individuals and their families to answer.

Financial Planning is an exercise in trying to balance out a whole series of objectives, some short term, some long term. For example, it involves looking at protection against the unexpected at the same time as planning for the future, where there will be some ‘known’ requirements.

Knowns and unknowns….

Many of us will know we are going to retire and quite often will have a good idea when this is likely to happen.

It has to be stated, however, that – in general terms – nearly everything in our financial picture will be clouded by uncertainty. We don’t know what future return we will get on our savings or investments, we don’t know what future interest rates will be, or inflation rates, we don’t know what tax regime (and rates) will be in place or what income products or levels will be available to us when we retire.

We can never be sure of our health positions, will we need long-term care support or intensive health treatments in our old age? What age will we die?

Is our job safe? Will our Businesses succeed; will we get divorced?

The problem with planning our finances is that there are so many unknowns, far more than the knowns. The danger here is that we let these uncertainties dictate our approach and end up running a financial plan which is constructed on a ‘current-basis’ method.

What we mean by this is we look at the here and now, working to today’s known components, not tomorrow’s unknowns!

This is, in our view, a mistake. This current-basis financial planning imbalances short term positions and views at the expense of the longer term and reduces the chances of achieving those longer term objectives.

More people seem to put in place their plans for the future on this here and now basis than any other; they work around what they have today and what they can do today and then hope for the best from there.

Goals-based financial planning

The most important thing for you to get right in your Financial Planning, as we see it, is the ‘goal setting’. To get the best prospect of a successful long-term outcome, you need to orientate your financial planning (and therefore decisions) around interrogating and defining your goals.

This means tackling, head-on, the unknowns. It involves aiming to break these down into a series of possibilities and likelihoods, estimating what might happen and when. This needs to be done in conjunction with a set of desired outcomes or goals, which are the quantification of what you would like to happen.

Then integrated into this is a view of what constitutes your priorities, what takes precedent? For most families, the number one priority is likely to be ensuring that the family is protected in the event of unforeseen circumstances, especially the death of the main breadwinner.

All of the above then needs to be checked against various scenarios.

True Financial Planning works against clear and stated goals being identified and then working backwards to see what plan needs to be put in place today to meet these goals, all stress-tested against different scenarios to see how this would affect the outcomes. This is a sophisticated process, one which requires software (financial forecasting software) and skilled help.


The issue that we often hear raised about this approach (i.e. goal setting first, putting the plans in place second) is around the question, “this is all well and good, but what happens if I cannot afford to do the things necessary to meet my goals?”

If this is the case we can examine why you can’t afford it. Is there anything you can change or do to make your plans affordable? Or we can look at the realities of the plan and adjust accordingly.

Even the fact that this approach might highlight affordability issues, is a positive. This is because it allows you to see into the future, prepare and accommodate. Financial Planning in this way can actually lead to fundamental life or lifestyle changes.

Goal-setting, and using this as your approach, dictates where to invest, how much, for how long, what the dangers are, what protection is needed (and when), how your tax structure should look and so on. There are so many interconnecting parts that changes in one part affect another.

Provided those changes are always considered and tested against the effect on your goals then you can devise and run a comprehensive strategy with a great chance of achieving the outcomes you desire.

One final point: none of this works without regular reviews. As we have already stated, things change and these will affect the pathway (but not necessarily the goal) – it is vital that the reviews are there to make the Financial Planning adjustments which these will inevitably lead to.


Penguin Wealth are specialists in Financial Planning with qualified advisers able to support you to work through this methodology to show you how this can work for you. Get in touch with us here.

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