Most people want to retire with some level of financial security. We all want the peace of mind and self-dignity that comes from knowing that we are not at risk of ever becoming a burden on our families, the government or the state.
Knowing and understanding the three different phases of financial planning can act as a road map and help us prepare a good solid financial plan to improve our chances of meeting our life goals.
There are three different phases of financial planning:
The Accumulation phase The Distribution phase, and The Preservation phase
As the name implies, the first phase, the accumulation phase is the period of accumulating assets that will contribute to your wealth. This phase include your working years. First you learn to earn money, and then you determine how best to manage your money to make it grow into wealth. You can effectively do this by investing in different asset classes that will form the foundation of your wealth.
This phase provides a certain level of financial stability and most people never leave this phase their entire lifetime. However, majority of the population do not even enter this phase to begin accumulating any assets. They continually live from paycheque to paycheque without giving much thought to their financial future.
If you find your self in this phase, if you have invested in your first property (not your residential home), if you have started or purchased your first business, or purchased some stocks and shares, congratulate yourself.
Examples of common asset classes to contribute to your wealth include:
Cash (Treasury Bills, Money Markets, CDs) Bonds Stocks and shares Land and Property (real estate) Precious metals
The best advice for those in the accumulation stage is to hold onto the assets you are acquiring, and allow time to work it’s magic. Set time-bound goals for how long you intend to accumulate your assets before moving on to the next phase. Work diligently on your plan and keep your focus.
Continually learn more about the different asset classes available and diversify by investing in several classes. Different assets have different qualities and strengths, as well as risk and rewards.
Investing in several asset classes is a sound investment strategy that can significantly increase your ability to reach your investment goals faster.
The distribution stage is the period when you get to enjoy the benefits of wealth, when you get to draw down income from your assets. It is the reason for accumulating assets in the first place. After years of planning, investing and accumulating assets by the time you reach this stage your wealth is generally assured. Often by this time, your income is on autopilot to recur almost without much effort on your part. Most people can only dream about this phase.
The last phase is the preservation stage. This is the period when you plan to preserve and protect your accumulated wealth and prepare to safely transfer it to your rightful heirs.
In all three phases, there are three factors that can significantly erode the net value of your wealth. These are easily identified by the acronym PIT for:
Procrastination Inflation and Taxes
Whatever phase you are at in your financial plan, give careful thought to these three elements to reduce their threat to your net worth.
The key to reducing their threat to your wealth is to address them as soon as possible. The longer you wait, the more damaging their impact becomes. With the right investment strategy, you can enjoy your wealth, and simultaneously keep it intact.
The first most important step to financial planning is focussed asset accumulation. Start saving now to build and accumulate your wealth. Until you save, you cannot accumulate. The earlier you start planning, the sooner you will save, and the faster your assets will grow.
By: Margaret Ntifo
Posts Tagged ‘Assets’
8 Steps to Developing Your Own Financial Plan
December 25th, 2009
When you decide you want to get serious about making some real money, getting on top of your credit cards, mortgage or other debts it’s time to sit down and crunch some numbers. Establish your current financial position and decide where you want to go and how you will get there, by answering some questions, and following these 8 simple steps to developing your own financial plan.
One. Work Out your Financial Position and Needs
How much do you want to invest? What is your income after expenses, will you borrow to invest? How much? What sort of return do you want or need? Do you want to invest short or long term? What will your future expenses be? How is your health? How much do you have in superannuation? How much super are you likely to have when you retire? Will this be enough?
Two. Write Down your Financial Goals
Are you investing for income now or do you want to build assets you can draw on in the future? When would you like to reach your goals? Consider a step by step approach, 1 year, 5 years, 10 years. What sort of lifestyle do you want now and in the future?
Three. Write down your preferred strategy to achieve your goals
Will you purchase property, shares or both? Will you manage your investments yourself, use a financial planner or managed fund? Will you use long or short term strategies? Will you reinvest your returns?
Four. How do you manage your income?
What do you need to live on, how much can you afford to save? Can you put money aside for an emergency? Are you in secure employment or self employed?
Five. Project your future earnings through income and investments; include these in your plan.
Will your salary rise? What is your estimated investment return, how will it be used? Will you draw on your returns regularly, for large purchases or investments?
Six. Consider the possible risks; include yourself (eg. ill health, loss of income) and how you will deal with these?
What investment risks are you prepared or inclined to take? Have you insured yourself? What insurance do you need? Have you made out a will? If you have assets dying without one could make things very difficult for your family. Do you have someone who can step in and act on your behalf if something happens to you? Take care to keep accurate, orderly and up to date records of your investments.What investment category do you fall into conservative, moderate or aggressive? Do you have a need to sleep peacefully at night or are you inclined to gamble?
Seven. Include all Expenses
What expenses will you incur if you use a financial planner or managed fund? What costs are involved if you use a stock broker or trading platform? What about property purchases and their ongoing fees? Will you allocate time &/or money towards self education.
Eight. Get Some Expert Advice before You Proceed
So you’ve outlined a plan and answered some really tough questions. Congratulations! You’re off to a great start. There are a number of avenues you can now consider to ensure the success of your plan, so before you proceed consider some professional advice. You may decide to talk to an accountant, a financial planner or stock broker, read books or undertake some study. So be informed as much as you can be and create for yourself and your family a financially secure future.
By: Teresa Vidal
Divorce Financial Planning – Help and Advice
December 22nd, 2009
If you and your spouse have a good relationship, despite getting divorce, things are going to be so much easier for you both on the financial end. However, you should still have your own lawyer and you should know about what joint assets you have. In divorce financial planning, you should realize that both parties have rights to all assets unless otherwise spelled out in a contract signed before marriage. Even then, that contract may be null and void depending on the reason the marriage is breaking up. If these things are simple, you can come out as clean as possible.
Those that work with divorce financial planning will tell you that those that fight tooth and nail always end up losing out. What can make things is hard is when one party decides to try to hide things or remove money from joint accounts or retirement accounts. These are all important with divorce financial planning. Those things, if drastic steps are taken to hide them, can come back to bite you. You can also find that fighting indefinitely over these things is going to ruin credit and eat up said money. Keep that in mind.
If you own a home together, divorce financial planning is going to be much harder. This is even tougher when the housing market is down and out. If you have to sell the home, it could take years to do it. When the mortgage is due and one or both of the people involved have to pay rent or a new mortgage somewhere else, money is going to be tight. This can happen with cars and even vacation properties that must be sold. These are often stalling points in divorce financial planning. Try to keep an open mind. By trying to hurt your spouse, you are going to hurt yourself as well.
Talk with someone at your bank about divorce financial planning. If you have good credit when you first decide divorce is imminent, there may be things that you can do to ensure that you do not fall deeply into the hole as you go through the separation of assets. There may not be much you can do in this regard to divorce financial planning, but it never hurts to talk with someone about what is going to happen and what your options might be.
By: Peter Bassett