Financial Planning

Why is Financial Planning Important?

Why is Financial Planning Important?

Why is Financial Planning Important?

While long-term financial planning is crucial in managing your finances, it is also important to be flexible and adapt to any changes to your circumstances or investment markets. It is also vital to look at your broader finances and investments as opposed to individual elements. This allows you to make decisions which will enhance and protect your long-term income.

Achieving goals

Creating a roadmap is an important element of any financial plan because unless you know where you are going, how do you know when you have arrived? While it is vital to maintain your long-term aspirations, it is just as important to have short-term targets and goals, tick box exercises as you move forward. Even though your long-term roadmap will likely change over the years it is still important to have a degree of financial visibility.

Budget and spending control

The current situation is a perfect example of how budget and spending controls will impact your short, medium and long-term finances. Many people are struggling with the current cost of living crisis, often needing to divert long-term investment funding to cover short-term budget shortfalls. This may include something as simple as reducing your pension contributions or taking a pension contribution holiday, with the intention of renewing and even increasing contributions when your financial situation improves.

Emergency fund

Any financial plan will involve a degree of short-term liquidity sometimes referred to as an “emergency fund”. With the best will in the world, it is impossible to forecast what may happen tomorrow, let alone a year, decade or 20 years down the line. Even if the emergency funding is not required, it acts as an insurance policy and provides a degree of comfort. This, in turn, may stop you from making emotive snapshot decisions because of a lack of short-term funding in the future.

Debt management

There is nothing wrong with taking on debt as long as it is respected and used correctly. Therefore, debt management will be an integral part of any financial plan, helping you to maintain control and keep to a viable long-term repayment plan. This may also involve a degree of protection; for example, life insurance which can be used to pay off a mortgage in the event that you passed away unexpectedly. In this scenario, the insurance payment would see your family left mortgage free and protect the family home.

Investment and wealth building

Long-term financial planning is centred round investment, wealth building and also, as we touched on above, protection. This may involve an array of assets such as savings, stocks and shares, bonds, property as well as tax efficient investment vehicles such as pensions and ISAs. You will find that your investment strategy will be very different in your early years compared to that approaching retirement. Diversification is also an important element of investment and wealth building; don’t put all of your eggs in one basket.

Retirement planning

As we touched on above, your investment strategy is likely to change as you approach retirement. In your early years, there might be a focus on growth stocks, switching to a balanced approach in your 40s and then income and liquidity as you approach retirement. There will always be an element of long-term growth required, even in retirement, as your investments and your income will need to fund your lifestyle for anything up to 40 years.

Tax planning

It is also important to take advantage of tax allowances and tax-efficient investment vehicles in order to control your short, medium and long-term tax liabilities and those of your estate on death. This can be a complex area of financial planning, one which changes on a regular basis and requires professional advice. You may find that actions taken or not taken today could have a significant impact on your long-term finances and tax liabilities.


As we have touched on above, there are many different elements to financial planning, all of which have a role to play. While it may be a temptation to focus on particular areas, for example, investment, it is crucial that you look at the broader picture, including assets and income for example. 

You will also need to be flexible with your long-term financial plan, adapting to changes in the market and your personal situation. A financial adviser will be aware of changes in the market, changes to regulations and how best to adapt to your personal situation.