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7 Steps to Financial Planning

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One of the most popular things we review heading into a new financial year is our investments. Whether it’s setting a savings goal, identifying new investment opportunities or simply taking the chance to review the performance of current assets, it’s always a great time to lay down some financial planning objectives for the future.

The thing is, many people haven’t. While retirement and financial planning is often a concern for many people, these fears don’t necessarily translate into action. Starting your financial planning early is vital for building a successful property investment and, as we look to set goals, there’s never been a better time to get started.

This is why we’re running through our steps to financial planning. What follows is a brief overview of the steps themselves, as well as insights from industry experts on the importance of setting realistic goals early.

  1. Set Your Goals

The most important part of any plan is the preparation. Understanding the finances and assets you have available to you currently is vital, especially before you start setting long-term goals. For investors especially, knowing where you stand is important to ensure you can find the optimum investment to fit your strategy, needs and budget.

According to Laura Thursfield, an Independent Financial Advisors with Mazars, when you’re setting your goals it’s vital that your investment fits into your present and future plans: “Before I can tell someone what the optimum investment is, we need to take a look at what they’ve currently got and make sure that investment fits into their circumstances now and then what their objectives are in five or ten years time. The starting point is what do you have now, the second point is where do you want to get to and then my job is to bring the two together with a recommendation.”

  1. Set a Budget and Stick To It

At this point in your planning, understanding your budget is vital. A trap that many investors fall into is having an inflated view of the income that their asset base can produce, especially once they stop bringing in a regular salary. This typically leads to setting unrealistic goals, which can bring challenges in the long-term.

A more realistic way of working is to break down the amount of money you need and the lifestyle you want and then marry the two together. This leads to a much more realistic picture of what life could look like during retirement. 

Just remember to be flexible. Goals can change at a moment’s notice and it’s important that your entire financial plan is flexible enough to meet those changing objectives. 

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  1. What Part Does Risk Play? 

As always, any investment carries a degree of risk. It’s important that you consider your risk profile, how risk averse you are and take steps to mitigate risk further down the line.

This can include speaking to industry professionals – such as an independent financial advisor – or just ensuring you have a diverse portfolio of assets.

Property is particularly effective for building a diverse portfolio as you can mix up your property types and locations, ensuring you’re not relying on one specific market.

  1. Think Long Term!

In the recent ‘Time to Invest’ survey that we conducted, we found that out of 1,200 people across the UK, 41% have no investments planned for the future. As living costs increase, the prospect of working longer to build a comfortable retirement is much more likely. This is why many people turn to investments to support later life – whether it’s a pension, property, stocks or ISA.

When you’re setting your financial goals, thinking long-term is just as important as the short-term. Any movements you make now can have an incredible impact on your pension pot for the future. Also consider that by building your financial planning and even investing now, there is more opportunity for building a solid, diverse portfolio that can deliver much more than relying solely on a pension.

Having additional investments can provide compound returns and deliver passive income over longer periods of time, freeing up capital to re-invest, supplement a pension pot or simply enjoy.

This is where an ‘Off Plan’ property investment can help. With the potential for building value over the long-term, plus the opportunity to deliver rental returns upon completion, Off Plan property is a natural fit for those that want to maximise the results of their investment over the long-term.

  1. Stay Organised

Regardless of the size and scope of your objectives or investment portfolio, ensuring proper due diligence from the outset of any purchase is vital. Staying organised will ensure that you maintain a focus on your future objectives, which can be made easier by setting SMART goals – specific, measurable, achievable, realistic and timely.

You’ll want to set goals that fit all of the criteria above. By doing this, you’ll naturally focus your efforts and increase the chances of being successful going forward. 

During your financial planning and indeed the investment process you’ll want to stay on top of your cash flow, your investment location (in the case of property) and general market trends. These can all affect an investment and organisation is vital for keeping each of these aspects in check. 

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  1. Establish An Emergency Fund

Ask any seasoned investor about preparation and many will advise the creation of an ‘emergency fund’ first. Having a spare pot of money is always a good way of mitigating any unforeseen challenges. If something goes wrong, having a financial safety net is incredible useful. In terms of property, an emergency fund can help mitigate void periods. As dangerous as rent arrears, void periods are instances where the property is empty and not generating income. 

Consider having to pay mortgage repayments on a property you’ve invested in because you cannot find a tenant. Now consider that amplified across a portfolio. Having a ‘rainy-day’ fund can mitigate challenges associated with void periods, ensuring that damage to your overall investment is kept to a minimum.

Fortunately, by having a tenant in-situ from the outset, many ready-made investments offer the opportunity to avoid early initial void periods.

  1. Review Current Investments

Reviewing your investments is a vital part of finalising your financial goals. Once the above measures are in place, you’ll be in a good place to examine what assets you have available to you and how they can help support your objectives. 

Whether you’re reviewing a portfolio or identifying new opportunities, take the time to see how these investments fit into your current circumstances. A ready-made investment, for example, is ideal for delivering immediate gains in the short-term, while an Off Plan property investment can be good for long-term strategies.

Why Should You Start Financial Planning?

Robust planning is vital at every stage of the investment cycle but never more so than when scaling a portfolio. Property portfolios can come in all shapes and sizes, making it important to decide on your strategy early on. Some investors find success with a particular niche demographic, such as students or professional sharers and decide to stick with that niche. However, it can prove equally lucrative to opt for a more diverse portfolio.

Either way, it’s important to maintain your due diligence and good practice: know and understand the location, understand your target tenant and set guidelines on budgeting.

Any portfolio will come with increased responsibilities and greater workload, making it important that you manage the duties or gain the help of external support. Research the cost implications of working with a property manager or letting agent and factor this into your final strategy.

Before you start thinking about expansion, consider locking in place a strong funding scheme. Many investors who have benefitted from growth in the value of their existing properties generally look to remortgage, releasing equity to fund their next investments.

Remortgaging for Investment

Remortgaging can deliver significant financial benefits, allowing you to release some of the equity tied up in your property alongside securing a lower interest rate and reduced monthly repayments. Depending on the amount of equity, this can be viewed as preferable to taking out a loan, not least because having other outstanding debts may reduce your chances of being accepted for a buy-to-let mortgage on any new property.

Regardless of how you plan to fund your expansion, keeping a track of your finances is vital and can make the difference between a successful investment and a failure. Costs can fluctuate in the early days of scaling and will quickly spiral out of control, making it important to have a clear view of how your portfolio is performing overall.

Ultimately, building a successful portfolio is about good timing as much as it’s about planning and market knowledge. Successful investors will have a strong handle on current and future prospects for tenant demand, researching locations and projects of property price growth to inform their decisions.

It’s also incredibly important to build a relationship with your lenders. By having access to credit you can scale much more efficiently and take more opportunities, investing more and building a portfolio that works for you.

As investors will likely testify, there are always circumstances that will challenge your strategy but the ability to be agile with your investment decisions will put you in good stead. Flexible planning is vital and helps mitigate the impact that life events have on your long-term situation.

If you’re looking to take your investing to the next level, the best thing you can do is perform the necessary financial planning. Complete your due diligence, complete the research and get your affairs in order – it will save time, money and effort further down the line.

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The examples included within this document are intended as a guide only. We are not financial advisors and financial advice should always be utilised before any investment, purchase or sale. The content included is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Any reliance you place on such information is therefore strictly at your own risk and we accept no responsibility for any errors or omissions. In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of profits arising out of, or in connection with, the use of this information. The above information and marketing material does not constitute or form any offer to or contract with you. Any examples included within the guide are for illustration purposes only. The information contained herein is not intended to be a source of advice or credit analysis with respect to the material presented, and the information and/or documents contained in this website do not constitute investment advice.

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