What’s the point of financial planning?

This is the second of three Insights in which we reveal the biggest secret in personal finance – how to design a great financial plan.

What have we covered, and what’s coming up?

In the first Insight, we learned that very few people are aware that financial planning services exist.

We also explored why this (the most valuable) financial service seems to be so secret and touched on the personal financial crises that can arise when we fail to plan.

If you’ve not read that Insight – please start there.

In this Insight, we’ll explain what financial planning means – in plain English – and why it’s so important to follow this approach.

And we’ll start to outline a seven-step (A.W.E.S.O.M.E.) approach you can use for planning your money  – which we’ll complete in the next and final Insight.

You can use this process regardless of your age, income, wealth or wherever you live in the world – and whether you choose to plan your money on your own or, as we’d suggest, with help from a professional adviser.

We’ve called this an ‘awesome’ process to make it easy to remember, and hope you’ll share this series with your friends and family.

Why do your money skills matter?

We’ve known since the 1970s (from Psychologist Albert Bandura’s ideas on Self-Efficacy) that we humans tend to engage more in activities where we feel we have some ability.

We don’t tend to accept invitations to play competitive tennis if we’ve never held a tennis racquet!

So, it goes with personal finance: we all have financial goals, but achieving those goals efficiently (without wasting a ton of money) can be hugely challenging without a sound plan, and if we don’t know how – we’re unlikely to plan.

We’re more likely to avoid talking about money matters altogether – although there are many reasons we do that, as we explored here!

Bandura and other Psychologists found that when we don’t feel skilled enough, we focus more on our failings, lose confidence, and avoid those complex tasks.

On the other hand, as we become more capable, we:

• Develop more interest in those activities and commit more strongly to them.
• Recover quickly from setbacks, and re-frame our problems as tasks to be mastered.

To learn more about the drivers of behaviour change, look at this brilliant model from Social Scientist and author of ‘Tiny Habits’ Dr B.J. Fogg.

It shows how our capability is critical for our success because it reduces the need for that elusive power called ‘motivation’!

When do you need to learn about money?

Ideally, you’ll learn the basics about financial planning – and take action on your priority needs – long before the arrival of a catastrophic financial event like those we listed in this first Insight.

However, we must accept that our knowledge may be limited. The truth is that very few people know much about financial planning.

Just remember, it’s never too late to learn about money – from trustworthy professionals, in person or in posts like this.

We all make mistakes with money, but no one wants a financial life journey where all the lessons come from heavy losses in unsuitable investments.

Or from a failure to set up some low-cost but essential insurance for our life and health.

Of course, you don’t need as much knowledge about personal finance if you have a good adviser. You could simply let them (or an advice Robot!) plan your money for you – but that’s not an enjoyable or the most effective way to plan your money.

So, we’d still encourage you to learn the basics.

That way you’ll stand a better chance of knowing if you’ve hired the right adviser – and you’ll feel more engaged in (and in control of) the process to design your financial life plan.

Three reasons to learn the basics of financial planning

For financial advisers, planners and coaches

This educational Insight is one of many we’ve created for you to use under license in your business to help more people make better financial decisions – and see the value of professional advice.

You can brand these licensable insights to your business style and add your own firm’s calls to action.

If you have any questions at all, please email me at hello@paulclaireaux.com