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While there are so many services that Financial Planners provide their clients, they can all be simplified down to two key cornerstones: Creating Wealth and Protecting Wealth.
What is wealth? It’s the abundance of valuable resources like money, shares, property, etc.
Creating Wealth is all about those services that we hear so much about: Managed Funds, Shares, Property Investment, Gearing, Debt Reduction, etc. This is the main reason why people visit Financial Planners. They want increase their wealth.
Protecting wealth refers to insurance such as life insurance, income protection, asset protection, etc. But it also refers to looking at how your money is invested and how risky it is. Depending on your situation (as described below) you may want to protect your current wealth by having it in low risk assets. With Australians being amongst the most under insured countries in the world it seems we’re all taking the “She’ll be right” attitude to our financial future. And as many people realise too late, it won’t be right.
Both cornerstones are essential to any financial plan however how important they are depends on the stage of life your in and most importantly how much wealth you’ve already accumulated.
When you first starting out in the “real world” (ie you’ve just left school), you don’t have much to show for yourself. You have virtually no wealth built up and normally a pretty low wage.
For your financial future it’s all about growth and high risk, high return is your lifeblood. Making significant financial gains at this time in your life can have a significant impact on your quality of life at later stages. At this point there’s not much to think about from a wealth protection point of view as there’s nothing to protect.
Now that you have a family or other people depending on you for financial support it’s important to reassess your wealth creation strategies. At this point you really need to make sure that you protect the wealth that you have and you reduce the risks when creating more wealth. Any financial risks for you take are also risks for your family and the people that rely on you. This is where insurance can really protect you.
When it comes to retirement, hopefully you’ve already done all the wealth building you need and now have a solid pool of wealth. Unlike previous life stages you no longer have to worry about increasing your wealth but now it’s about maintaining your wealth.
Regardless of your life or financial stage it’s important to consider your need for wealth creation and protection (though different for different stages). A financial planner can assist you with both and the earlier you see one, the better your path to financial freedom could be.
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