Home bookkeeping is the simplest form of financial planning: by juxtaposing income and expenditure, families hope to be left with something at the end of the month. This is something that makes sense, but in the short term. Comprehensive financial planning focuses on the entire life cycle and on the long-term, making sure that by the end of your life you are left with something a bit more substantial for both you and your family.
Some might say that life can only be planned to a certain extent. Nevertheless, planning your finances in the long term, taking into account planned expenses, such as a larger house, your children’s education or your retirement, as well as any unplanned expenses, such as a divorce or an accident, is of fundamental importance. In order to do this, you need a comprehensive approach as well as a dynamic analysis of your liquidity and assets. An independent financial planner, providing you with advice such as a ‘family CFO’, can help you achieve this general overview, focusing on your needs, in a comprehensive and cross-disciplinary manner. They can provide you with these analyses in real time, so that you can make informed financial decisions involving far-reaching consequences.
Basic aspects
Like companies, families also need financial planning: a balance sheet featuring assets and liabilities, a profit/loss statement with the indication of income and expenses, as well as a cash flow statement. Furthermore, pension, taxes and succession need to be taken into account. Long-term financial planning allows you to identify any danger at an early stage, minimise risk and invest safely, in a tax-optimised and cost-effective manner. This results in a rise in the bottom line for your benefit and for the benefit of your family. A liquidity plan and a flexible asset structure are fundamental. Ready-made solutions are not able to meet this requirement. That is why you should trust a financial planner, as they can act like your financial coach and sparring partner: familiar with issues such as asset accumulation, retirement provident schemes or succession, they can advise you in a comprehensive manner, without being tied to providers or products.
From determining the goals to monitoring
Financial planning takes into account both your current and future circumstances and advice is provided based on five steps: goal definition, analysis, strategy, implementation and monitoring. Once you have defined both the current and the target situation, you can determine the direction and stick to it even in troubled times. You should have ambitious goals and invest, for example, in the short term, on your holiday home in the Engadin valley, in the medium term, on your daughter’s start-up and in the long-term, on your early retirement. Cash flow statements allow you to know how much money you need and can invest in portfolios with different return targets and risk profiles, based on your requirements and time horizon. However, not everything should be allocated: you should keep a sufficiently large liquidity reserve in the event of emergencies. In this way, you won’t have to sell assets at the wrong moment.
Each decision has consequences
Comprehensive financial planning is much more than just greater expenditure or financing. Each single element, including asset accumulation, pension schemes, tax issues or succession, interlocks like the gears of a clockwork. When a gear jams, the clock stops working, but time carries on. For example: without comprehensive and forward-looking financial planning, if your children want to study there is going to be very little left for you if you want to retire early. That’s why it’s so important to recognise all the interrelations and understand the financial consequences of each decision you make. Unlike all the others, an independent consultant is able to explain advantages and disadvantages in an easy and understandable manner.
Until death do you part
One aspect of comprehensive financial planning which is often neglected is death. A life insurance policy allows you to cover any possible income gaps for your partner and children, while estate planning ensures clarity and is beneficial for your partner. Married couples can rely on marriage contracts, wills, inheritance contract or property law instruments. The first part of the new inheritance law will enter into force on 1 January 2023. As a result, the available share for married couples will increase, providing you with more leeway, to the benefit of your partner, for example. Thus, also any consequences in terms of inheritance law and tax law should be well assessed and planned. Pension and estate planning are even more important for cohabiting couples because the surviving partner is not entitled to any private or state widow’s annuity or to a legal inheritance.
“The earlier you deal with financial planning, the more you can relax and enjoy your life.”
