On first look, many people assume that the value of financial planning all revolves around the numbers. Whilst analysing income, expenses and assets are a critical part of our financial foundations, the true benefits of financial planning are much deeper.
What is the value of a stress-free night’s sleep? The flexibility to control your time? The ability to live life on your own terms and by your core values? Priceless.
There are generally three core stages we go through on our financial journey: financial stability, flexibility and freedom. Each stage brings different benefits to our lives. Whilst it can be a long process as we advance through each stage, financial planning plays a critical role throughout.
Milestone 1: Stability
As psychologist Abraham Maslow illustrated in the Hierarchy of Needs model, we need to meet our physiological and safety needs before focusing on our other priorities (Maslow, 1943). From a financial planning perspective, this means having enough income or assets to meet our basic expenses. Things like having shelter, enough food and maintaining our health are all non-negotiables in life that cost money.
At this stage we might have just enough money for our regular expenses, with the ability to save perhaps a small amount on the side. Many Australians sit in this zone, with the average family able to meet their expenses and save $3.80 of every $100 that they earn (ABS, 2024).
Financial Advisers can play a critical role at this stage by helping people put a clear cashflow plan in place, establish critical insurances and maximise the benefits available from social programs. This can help create peace of mind, knowing that there’s enough cash to maintain our lifestyle without falling into the trap of bad consumer debt.
At this stage we might be financially stable, enough to make ends meet, but not able to create the flexibility that we want for ourselves in life.
Milestone 2: Flexibility
Morgan Housel, author of ‘The Psychology of Money’ notes in this book that “controlling your time is the highest dividend money pays” (Housel, 2020). At this stage of our financial journey, we start to create more flexibility in how to use our time.
This milestone can be categorised by having good surplus cashflow, with sufficient emergency cash savings to cover your expenses for a few months. This creates a powerful force in your life, with greater flexibility to control your time. Some examples include being able to take time off work to care for a loved one, going on that dream holiday, or taking time to find a new job without breaking the bank.
Financial Advisers can play a critical role at this stage by helping people put the right structures, strategies and solutions in place for future wealth creation. Structures define where to invest, strategies define how to best manage these investments and solutions define what products will help achieve our overarching objectives. Having greater surplus cashflow also brings a lot of opportunities to build up investments.
At this stage, money is beginning to open doors to the things that matter in life but is not enough to provide true freedom.
Milestone 3: Freedom
Think of financial freedom as a situation where money is no longer a barrier to the pursuit of your key passions in life. This stage offers the ability to take calculated risks, liberating your time to use as you want. This creates the opportunity to enrich life in deep and meaningful ways.
This includes things like prioritising family needs, taking time to get a new business off the ground, or dedicating time to community initiatives. This milestone is categorised by having investments that produce enough income to meet your regular expenses. Work becomes something you want to do, rather than a necessity to generate income.
At this stage, Financial Advisers can play a significant role by managing client investments responsibly and ensuring that these assets are well protected for the future.
Conclusion
Good financial planning has the power to change lives in the best ways possible; for yourself, your family and those in your community. For those looking to become a Financial Advice professional, the opportunities have never been greater.
