The advantages of Financial Planning in your early 30’s: A real client example
Previously, we have written articles based on real client cases.
Clients that have contacted us with an issue, seeking our advice and then the outcome of same.
These articles get really positive feedback from clients and contacts alike.
This is because they are based on real circumstances and the reader generally can either relate to the situation or knows someone who would.
I’ve decided to revisit this theme for this week’s article.
It’s also appropriate as, under a recent article, I highlighted that I feel the younger demographic get missed in the financial planning world.
Unfairly, as good strategies and informed decisions now can go a long way to alleviating financial stress in future.
There are significant advantages of financial planning as a young adult.
A while back, a young adult contact us with some queries on a specific financial issue he was having.
The Situation
The (now!) client had savings sitting between his bank and credit union.
His worry was that he had no plans for these, they were doing nothing and he was worried about inflation.
He had also read our article on the money illusion.
The two issues combined made him realise his hard-earned savings were actually losing value due to no return on offer from the bank and credit union.
In terms of age, the client recently turned 30.
Is living at home with his parents.
We had our introductory call in which he provided this information to us.
The Journey
Discussion
During our initial discussion, first of all, we addressed the client’s immediate need.
The money on deposit, what can he do with it?
However, as part of our process, we had a further in-depth conversation.
We asked some questions like:
- If you couldn’t work due to illness or injury, how would you be paid?
- Do you know of the financial impact diagnosis of a serious illness would have on you?
- What rate of income tax do you pay?
- Are you aware of the tax benefits of a pension?
Gathering the information
Our client completed his financial planning questionnaire.
This was done online through our secure portal for his convenience.
We also offer our clients the traditional pen and paper method of completing this.
Preparing the Analysis
When the financial planning questionnaire was complete, we could analyse it.
The key issues identified for discussion were as follows:
- If you were to get injured or sick, what income would you receive?
- The savings sitting earning zero return, what options are there for these?
- Are you part of a pension with your employer?
Discussing the findings
Upon completion of the analysis, we met again and reviewed the findings.
In this discussion, I highlighted to the client that the issue he had identified was an issue but there was something else to be considered.
There was no mention of any income continuance cover in place.
This meant that if he went out of work due to illness or injury, his income would drop to approximately €900 per month from the government.
Not enough to cover his monthly outgoings.
However, on discussion, he felt he had this via his employer as he is employed by a large multinational company.
Following further investigation, he has coverage of two-thirds of his salary less the state illness benefit via his employer.
This is a significant benefit as there is no cost for himself to provide this benefit.
The conversation could then turn to what he viewed as most important, his initial query.
Money in the traditional savings strategies, earning no return, reducing in value.
We discussed the importance of investing, particularly for young adults.
We outlined how we could:
- Allocate a portion of his savings to an emergency fund
- Keep a second portion in an easily accessible instrument
- Finally, allocate a portion to a strategy to generate growth and the long term benefits of this
Finally, there was a pension scheme on offer from his employer.
One where he would contribute 5% of his salary and they would match that.
He had never joined as he didn’t understand a pension and no one had explained them to him.
Recommended financial planning Strategies & Implementation
We made recommendations as follows.
A low sum insured income continuance policy to bridge the small income protection shortfall.
Bridge the gap between his employer’s cover and the maximum allowable cover.
This meant our client was safe in the knowledge that if he couldn’t work due to illness or injury, he would have 75% of his salary continued to be paid.
That would be a combination of his employers’ income continuance policy, his personal cover and the state illness benefit.
All his monthly outgoings would be covered in a worst, case scenario.
He would also claim tax relief on the cost.
We recommended an investment strategy.
A strategy designed for some of his current savings and to which he would commence paying into per month from the outset.
This strategy is designed to achieve a rate of return in line with his tolerance for investment risk.
A steady return over and above inflation. Growing his wealth in line with his individual objectives.
Our client entered this strategy safe in the knowledge he had his emergency fund fully liquid.
His emergency fund and some other cash held in savings are fully liquid so he can still live life for today but he is making solid financial plans.
It’s about balance. We don’t want you allocating all your resources to tomorrow.
It’s our idea that you have to live for today as well.
We recommended he join his employer’s pension.
Like it or loathe it we all need a private pension, harsh fact of life.
We explained how a pension works in simple terms and the need for one.
He would contribute 5% and his employer 5%, a total of 10% of salary.
However, due to the tax relief available, the net cost to him is only 3%.
3% of salary for a 10% in total contribution, winner.
The benefits to our client
Following the review and implementation, our client now has peace of mind.
From a risk management perspective, if he can’t work due to illness or injury, 75% of his income will continue to be paid.
He admitted he would never have considered this an issue until we highlighted it to him.
Would €900 per month cover his outgoings?
The foundation of any financial plan, protect your most important asset, your income or rather your ability to earn it!
This then allowed him to move on to what was his initial query with confidence.
How to combat inflation and get his money working harder for him.
Our recommended investment strategy should see the client inflation-proof his savings.
It should provide him with steady growth over and above inflation.
Not high risk, nor low risk. A simple, easy to understand well-diversified strategy.
Very much a strategy in line with his own individual life objectives.
The money he was holding on deposit is now working harder for him.
Additionally, he is topping this up every month, increasing his investment exposure and growth potential.
Again, as part of our process, not before we have ringfenced the following for him:
- A suitable emergency fund
- Additional money for spending on life finer things
He has also increased his tax efficiency by joining his employers pension scheme.
Whilst planning for his long term future.
Our client centred process has given our client the tools to empower himself to make informed financial decisions on the correct way forward.
Summary
Our client came to us with a specific query.
He had savings, realised they were earning no return, were doing nothing and he was worried about inflation.
Generally speaking, most clients do come to us with a single specific financial need or pain point.
Following our discussion, additional needs were highlighted.
We then prioritised the needs and allocated the resources accordingly.
In this client’s instance, all needs can be addressed.
Our client now has a solid financial plan to suit his circumstances.
The joint focus now switches to our ongoing service.
We will check in with our client at various points throughout the year and then an annual review next year where we expect to be able to report he has grown his net worth.
How we help
I’ve said it before, at Fortitude Financial Planning, we want this type of planning to be available to the younger demographic.
It pains me to say that the younger demographic, the 20’s and 30’s often get missed, unfairly.
Partly on their part, but partly on advisors’ parts also.
Some advisors don’t want them as there is not enough money to be made from them.
Other advisors have specific buy-in levels, for example, you need hundreds of thousands as a minimum amount for investment.
We’re a relationship-based firm.
We want to build a relationship with you as your trusted advisor.
Not just for the next year or two but well into the future.
Helping you to optimise your financial life as you move through the life cycle.
Unquestionably, there is a significant opportunity for you.
You can grow your wealth whilst living for the present (equally important!!)
Working with us, you are safe in the knowledge you are getting advice from a company that is not only Certified Financial Planner™ certified.
But a company that is also one of the few financial planning and advice firms in the country accredited by the All Ireland Business Foundation for our trust and customer-centricity.
Get in touch
Are you in your 20’s or 30’s?
Born in the 80’s or 90’s?
Or do you have a family member who is in their 20’s or 30’s?
Then please reach out to us, request a callback.
Or drop me an email, francis@fortitudefp.ie.
You can also give me a call on 086 0080 756 or access our diary here and book a call at your convenience.
We will initially have a no obligation chat with you at our expense.
We can discuss what you’re looking for.
Only then will we outline how we can help.
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