Unit 3 Topic 4

Question 1

What is the first step in drawing up a financial plan?

What do you need to do before drawing up a financial plan?

Answer 1

Before drawing up a financial plan, you need to know yourself – ie you need to have a good idea of your own needs, wants, priorities, attitudes and aspirations, so that you can develop a personal financial plan that reflects your own personality and situation.
You need to be aware of any financial constraints that cannot be changed, because you will have to work around them. You also need to think about where you are in the life cycle and what life events you may encounter.

Question 2

What is the second step in drawing up a financial plan?

What does this step allow an individual to do?

Answer 2

The next step is to think carefully about your financial objectives. This may mean deciding how important it is for you to earn the highest income that you can. Are you prepared to work in a demanding, high-pressure job, working long hours to earn a high income? Would you be willing to manage on a low income for several years while studying for whatever qualifications you need to pursue a highly paid career? Not everyone wants a highly paid job; it is important to understand what is important to you when you are planning your financial future.
Or are you more concerned about your quality of life? Are you prepared to earn a lower salary if you are able to do a job that you really enjoy or one that you find satisfying and rewarding in non-financial ways?
What, in other words, is your attitude to the ideal ‘work–life balance’? Answering this question should then allow you to decide what kind of financial targets and clear, measurable objectives you can realistically expect to achieve, and over what time span you might be able to achieve them.

Question 3

What are the examples of work-life balance?

Answer 3

• Financial stability and security
• Job satisfaction and career development
• Hours of work and rate of pay
• Levels of responsibility and autonomy
• Relationships with family and friends
• Personal development and growth
• Life experience and adventure
• Health and well-being

Question 4

What questions can an individual ask themselves to work out their attitudes to financial planning and see what characteristics their personal financial plan should include?

Answer 4

a) What are your main needs and wants in life?
Are you satisfied with a basic level of consumption or do you like your luxuries? Do you have any particular needs or strong wants that you feel you must finance whatever happens?

b) What is your attitude to spending money?
Are you easily tempted into making purchases or are you careful? When you want or need something, do you feel a strong desire to have it now, or are you willing to wait until you can afford it?

c) What is your attitude to saving?
Do you feel safer if you have a bit of money put away? Do you feel tempted to spend the money that you have saved, or does it give you satisfaction to see your savings growing?

d) What is your attitude to borrowing and being in debt?
Does it bother you if you owe money? Do you worry about how you are going to pay it back, or do you see it as a normal way of affording something that you could not buy otherwise?

e) What are your aspirations?
Do you hope to improve your standard of living as you get older? Are you impatient to start earning as much as possible, or are you willing to invest time in further or higher education, or in training, such as an apprenticeship?

f) What is your attitude to risk?
Are you happy to risk your money, even if you do not have much, in the hope of gaining more? Or does it worry you to think that you might lose what you have?

Question 5

What questions can an individual ask themselves to work out their attitudes to financial planning and see what characteristics their personal financial plan should include?

Answer 5

a) What are your main needs and wants in life?
Are you satisfied with a basic level of consumption or do you like your luxuries? Do you have any particular needs or strong wants that you feel you must finance whatever happens?

b) What is your attitude to spending money?
Are you easily tempted into making purchases or are you careful? When you want or need something, do you feel a strong desire to have it now, or are you willing to wait until you can afford it?

c) What is your attitude to saving?
Do you feel safer if you have a bit of money put away? Do you feel tempted to spend the money that you have saved, or does it give you satisfaction to see your savings growing?

d) What is your attitude to borrowing and being in debt?
Does it bother you if you owe money? Do you worry about how you are going to pay it back, or do you see it as a normal way of affording something that you could not buy otherwise?

e) What are your aspirations?
Do you hope to improve your standard of living as you get older? Are you impatient to start earning as much as possible, or are you willing to invest time in further or higher education, or in training, such as an apprenticeship?

f) What is your attitude to risk?
Are you happy to risk your money, even if you do not have much, in the hope of gaining more? Or does it worry you to think that you might lose what you have?

Question 6

What are the steps involved in drawing up a budget?

Answer 6

1. Identify and list all sources of income.
2. Identify and list all items of expenditure.
3. Decide on the time period that you will use in the cash-flow chart, eg a week or a month.
4. Fill in the figures for all of the various income sources and types of expenditure in the cash-flow chart.
5. Now you can calculate the total income and total expenditure for each time period.

Question 7

What is the formula of a cash flow forecast/ budget?

Answer 7

Total income + (-) Total expenditure = Surplus, deficit, balanced.

Question 8

When listing all sources of income what should be considered?

Answer 8

These sources include wages, allowances from parents or guardians, state benefits, interest on savings and investments, and money received for birthdays or other celebrations. It is helpful to list regular wages separately from wages that are earned less frequently. This makes completing a cash-flow chart easier.
It is important not to guess at these figures – your guesses may be wildly overoptimistic or far too pessimistic, both of which will greatly affect your budget. Few of us can remember exactly how much income we received last month, let alone last year, so it is best to gather together whatever bank statements (current accounts and savings accounts), payslips, business accounts, etc, you may have and to work out your weekly or monthly income as accurately as you can. If you have not been in the habit of keeping these income records until now, you must make sure to do so from now on.

Question 9

When listing all sources of expenditure what should be considered?

Answer 9

It is helpful to list all mandatory items first and then the optional items. This makes it easier to see what spending must be met and what you might change when you are using the cash-flow chart to manage your funds. Once again, you cannot rely on guesswork, or expect simply to remember how much you spend and what you spend it on. To compile an accurate assessment of your expenditure, you have to keep a record of what you spend – ideally, every day. Bank account statements will help you to identify the regular payments going out by direct debit and standing orders, and credit card statements will similarly detail how much you spent, where you spent it and what you spent it on. You should keep receipts for purchases that you make using cash, debit cards and cheques.

Question 10

When deciding on the time period that you will use in the cash-flow chart, what should be considered?

Answer 10

It is useful to choose the length of time between receiving your regular sources of income. So a student who receives a weekly allowance may use a week as the time period, whereas someone with a full-time job who is paid monthly will use a month as the time period. Your cash-flow chart should comprise enough columns for you to record incomings and outgoings over both the short and medium terms. How many of your chosen time periods you choose to include will depend on your own preferences: some people find it very difficult to plan more than three months in advance, while others are comfortable with a year.

Question 11

When filling in the figures for all of the various income sources and types of expenditure in the cash-flow chart, what should be considered?

Answer 11

Some items of future income and expenditure may be uncertain at the moment, eg wages from a seasonal job picking fruit, or how much next summer’s holiday is going to cost. Make a realistic estimate for these items for now and add this to your chart, but make sure that you keep a record of how much you actually earn and spend, because this will allow you to make more accurate estimates in the future.

Question 12

When calculating the total income and total expenditure for each time period, what should you do?

Answer 12

Write the figures in the appropriate fields and calculate the balances to see whether your cash-flow forecast is predicting a surplus (ie income more than expenditure) or a deficit (ie income less than expenditure).

Question 13

What should be done once financial plans are established?

How can this be done?

Answer 13

Once they are firmly established, it is vitally important that you monitor your financial plans to check how closely real life matches your income and expenditure forecasts as you live through the time period of your plan. Keeping weekly, or even daily, records of your actual income and expenditure allows you to compare the income received with the sums that you were expecting and what you are actually spending with what you planned to spend.

Question 14

What is budget variance?

Answer 14

The difference between the expected and actual figures is known as the ‘budget variance’.

Question 15

What is needed to help keep financial plans on track?

What needs to be done as well as identifying budget variance?

Answer 15

Simply identifying and measuring budget variance is not, in itself, going to help to keep your plans on track. The key to effective monitoring is to analyse the cause of the variance: if your plans project a monthly surplus of £200 (which you plan to save), but in reality you regularly end the month £100 or more overdrawn, you need to find out why. Have you overestimated your income or underestimated your expenditure in any way? If it is an income shortfall, what has been its cause, eg is actual overtime worked less than you forecast it would be? If you have overspent, on which items of expenditure have you spent more than you planned? Has the variance been caused by a change in an external factor – perhaps higher inflation or lower interest paid on your savings? Being aware of these variances should make you consider how to amend your budgetary plans in order to make your forecasts more realistic.

Question 16

How do you correct financial plans in the short term?

Answer 16

In the short term, if daily or weekly monitoring of your expenditure reveals that you are spending much more than you have estimated, say, on petrol, you have the opportunity to analyse why this is happening: have petrol prices gone up or are you driving more than expected? You can then correct the problem – in the short term, at least – by driving less, or by finding a petrol station that sells fuel at a lower price, or by accepting the higher spending on petrol and reducing what you spend on something else. If you have been thinking about buying a new car – perhaps part-exchanging the old one for a newer one – it would help you to reduce the cost of running a car if you were to make sure that the next car you buy is more fuel-efficient than the last.

Question 17

What is the simplest way to monitor your budget?

Answer 17

The simplest way in which to monitor your budget is to keep receipts for all of your purchases and use them, together with bank account statements, to keep a written record of your income and expenditure, writing the actual figures in a column next to your forecast figures on your cash-flow forecast using a spreadsheet program (such as Excel). With a spreadsheet, you can enter the projected and actual income and expenditure data into the relevant boxes; if you have set up your spreadsheet well, it will then automatically calculate totals, sub-totals, balances and variance.

Question 18

In recent years how have people used technology to manage and monitor their finances?

Answer 18

In recent years, increasing numbers of people have taken advantage of new ways of managing and monitoring their finances using the many specialised personal finance planning computer programs, online services, or smartphone and tablet apps that have become available – many free of charge. These make it even easier to monitor actual income and spending, and to compare – even on a daily basis – the actual figures with those forecast.

Question 19

What are some popular software, online websites and apps that people can use to help monitor their finances?

Answer 19

Free online planning tools, such as:
−the free budget planner offered by the government-funded Money Advice Service (MAS), online at www.moneyadviceservice.org.uk/en/tools/budget-planner
−Money Dashboard, online at www.moneydashboard.com
−the Debt Advice Foundation budget planner, which you can download from www.debtadvicefoundation.org/debt-tools/budget-planner
−Money Saving Expert’s budget planner, online at www.moneysavingexpert.com/banking/Budget-planning

Paid-for online planning websites and apps, including:
−You Need a Budget, online at www.youneedabudget.com
−Moneydance, online at www.moneydance.com
−Goodbudget, online at www.goodbudget.com

Question 20

How do popular software, online websites and apps for financial monitoring allow you to manage your finances online?
Why are they user-friendly?

Answer 20

These and other similar systems allow you to manage and monitor your finances ‘live’ online; some will sync your financial information through wi-fi connections, so that it is available on different platforms (ie PC, smartphone and tablet). This enables you, for example, to use your phone when you are out shopping to update your record of actual expenditure every time you make a purchase.
Each system or tool is designed to be user-friendly and easy to use, and they do not require any previous financial knowledge. There are usually comprehensive instructions and ‘how to’ video tutorials available to help you to understand how they work, and some also offer online advice and support, as well as contact with other users through online forums and social networking sites.

Question 21

How does Money Dashboard help people monitor their finances?

Answer 21

Money Dashboard, a free budget planning website and phone app.
They ask for the details of any current accounts, savings accounts and credit cards that an individual wants to add to the system.
Money Dashboard establishes links with the individual’s current account, savings account and credit cards. They will be immediately able to see all payments into and out of the accounts over the past month. More importantly, the transactions are allocated to different categories (some tagged automatically, while you have to allocate others to categories yourself using simple drop-down lists), which allows a person to see exactly what they are spending their money on.
A first weekly email, detailing income and expenditure during that week, is sent out and this updates them on their current balances in each of their accounts.

Question 22

What is it important to do with financial plans?

How easy is it for organised people to monitor their financial plans?

Answer 22

It is important to keep accurate records of your financial plan.
Organised people – ie those who always keep receipts and other financial documents, and who keep records of how much they earn and spend – will not find it hard to compile detailed financial cash-flow plans, whether they use one of the financial apps listed, simpler budgeting spreadsheets, or even simply a pencil and paper. As they live through the time periods for which they have planned, these people will record the actual amounts coming in and going out. This will highlight which planned amounts were unrealistic and need to be changed. Revising figures will be a normal feature of these people’s budgeting and will show them clearly the need for flexibility in the plan. People like these, who use detailed information in their plans, are in control of their finances.

Question 23

How do people who are less organised monitor their financial plans?

Answer 23

People who are less organised may simply jot down a few figures on the back of an envelope every week or month to see how much they have spent and how much money they have left until they receive their next allowance or salary payment. Others will work out roughly what they are likely to spend in the coming month (based on a vague idea of what they spent the previous month) to see whether their income will be enough to cover their expenditure, preferably with a potential surplus at the month end. Some planning is going on here, but it is not very detailed and leaves quite a lot to chance.

Question 24

How do people who do not forward plan monitor their financial plans?

Answer 24

People who do not forward plan may do only a few mental calculations – or they may simply check their current account balance when they think of it, or when they need to use their debit card to withdraw cash or pay for an item. Some will simply keep using their debit card until a card payment is refused because they have used up that month’s money. This approach to personal financial planning is very ‘hit and miss’. There is no planning for emergencies – or even foresight that they will occur – so these people have to do a lot of ‘firefighting’ (ie they simply deal with problems as they arise).

Question 25

What is the envelope method of budgeting?

Answer 25

A traditional method of budgeting – dating back to the days when the majority of people were paid in cash and did not have bank accounts – is the ‘envelope’ method. The idea is that the individual will set aside a number of envelopes and on the front of each write the name of a different bill or other item of expenditure (over the short or medium terms), along with the average monthly payment. When the individual receives some income (eg they get paid), they will divide the available money between the envelopes; if there is sufficient money, enclosed in each envelope will now be enough to pay for the item of spending detailed on its front. When the time comes to pay each bill, the money is taken out of the appropriate envelope to pay for that bill. If there is money left over after all of the available cash has been allocated, the surplus is then used to cover ‘pocket money’ spending and unexpected bills. This system should therefore stop individuals from spending money that they will need to pay their bills.

Question 26

How has envelope budgeting been converting to online banking?

Answer 26

While there are probably few people who still use cash and real envelopes, some banks and building societies (eg Barclays and Nationwide) and most credit unions allow you to open multiple savings accounts that can each be given a different name, eg ‘holiday fund’ or ‘emergency fund’. You can choose how to label these accounts in such a way that they become ‘virtual envelopes’ into which you can transfer money yourself (either in branch or online) or automatically, by setting up regular standing orders from your current account.

Question 27

How can virtual envelope budgeting help an individual with their finances?

Answer 27

Many of the personal finance websites and phone apps are also based on the method of allocating available money to virtual ‘envelopes’, ‘pots’ or ‘buckets’ (the terminology varies). With the benefits of technology, the system can reassure the user that there is enough money available to meet the expected expenditure or warn them when there is not enough in an ‘envelope’ to pay a bill, tell them when bills have been paid, or warn when they have overspent their discretionary spending and are in danger of using up any surplus that they might have been expecting at the month’s end.

Question 28

What are the new nationwide saving accounts?

What type of budgeting are they?

Answer 28

Nationwide has new ‘e-Savings’ accounts. Nationwide allows current account holders to open as many e-Savings accounts as they want and to give each account a different name.
This is a way to envelope budget online.

Question 29

What is a recent variation on the envelope budgeting method?

Answer 29

A more recent variation on the envelope method is called zero-based budgeting.

Question 30

What is the aim of zero-based budgeting?

Answer 30

Zero-based budgeting is an idea adapted from business accounting, the aim is to ensure that every penny of your income is spent purposefully and wisely.

Question 31

What problem does zero-based budgeting address?

Answer 31

The problem with traditional personal budgeting methods, which zero-based budgeting addresses, is that if your forward planning consists only of making sure that you have enough income to cover your essential bills and your regular discretionary spending – with a potential surplus that is vaguely allocated to paying any unexpected bills that might crop up – it is likely that, by the end of the month (if not sooner), you will have spent the surplus, but have no idea on what you have spent it. You therefore will not be making the most efficient use of your money, because you will have spent money buying things that are actually not that important to you; as a result, you will find that you cannot afford to pay for all of your intended high-priority purchases and / or cannot save the amounts that you wanted to pay for future purchases.

Question 32

How does zero-based budgeting work?

Answer 32

With zero-based budgets, you have to draw up a detailed cash flow forecast allocating every single penny of your expected income to a different expenditure envelope. The envelopes need to cover all of your expected spending, preferably over a period spanning the next 12 months. So you will have envelopes for all of your mandatory and essential spending, and for all your expected discretionary spending, right down to allocations for sweets and snacks, newspapers and magazines, takeaways, cinema outings, etc.

Question 33

How are annual or infrequent bills dealt with in zero-based budgeting?

Answer 33

Bills that occur only once a year or once every three months are quantified, then ‘chopped up’ into monthly deposits into separate envelopes, so that there is enough money to pay them when the time comes. You can deal with paying for anticipated ‘big ticket’ items in the future (such as holidays, a new car or furniture) in the same way, ie by means of separately labelled savings envelopes.

Question 34

How are unexpected bills dealt with in zero-based budgeting?

Answer 34

To allow for those nasty unexpected bills, such as car or washing machine repairs, you must also allocate a sum of money to an emergency fund envelope. Your monthly budget plan will not be finished until every penny of your income is allocated to a spending or saving envelope – leaving a zero balance (hence ‘zero-based budgeting’).

Question 35

What is the advantage to zero-based budgeting?

Answer 35

The advantage of this system is that it forces you to be aware of where your money goes and to prioritise every item of expenditure. It prompts you to consider, for example, whether the TV sports and movie channels, which cost you £24 per month, are more important than saving the money to help to pay for a summer holiday – or the consequences of taking out a loan to buy new furniture: on which items of expenditure will you cut back to be able to afford the monthly repayments? In other words, it makes you consider the opportunity costs of your spending.

Question 36

What are opportunity costs?

Answer 36

Opportunity costs are defined as the value of what you have to give up to consume something else, eg the value of the summer holiday that you have foregone because you would rather keep your subscription TV channels, or the value of the gym membership that you have cancelled so that you can afford the loan repayments on your new furniture.

Question 37

How does zero-based budgeting demonstrate opportunity cost?

Answer 37

With a zero-based budget, when you have spent all of the money that you had allocated this month to, say, takeaways, but you really, really want one more chicken tikka masala with pilau rice, you have to decide which other envelope you are going to take the money from to pay for it. In a very real way, you will be measuring the cost of your extra takeaway in terms of something else that you are going to have to give up.

Question 38

Which budgeting method is the most complicated?

Answer 38

Zero-based budgeting is more complicated and requires more effort than other budget methods, but there are spreadsheets available for free online that make it a lot easier. Some of the online financial planning websites and phone apps are also based on the zero-based budgeting system – eg Zero Based Budget HQ, online at www.zerobasedbudgethq.com, and You Need a Budget, online at www.youneedabudget.com – so it can be a practical way of organising your finances if you are comfortable with using online tools or apps.

Question 39

What does a personal financial plan need in order to be effective?
(In terms of time-periods)

Answer 39

To be effective, personal financial plans should cover short-term, medium-term, long-term and very long-term time periods; the plans for each period should all interlock. The short-term plan, in particular, should be sufficiently flexible to accommodate changing future needs, wants and aspirations.

Question 40

How long is the short, medium or long term?

Answer 40

There are no commonly agreed or standard definitions of how long the short, medium and long terms are because it depends on personal circumstances and the perspective of the individual.

The key when defining the ‘short’, ‘medium’ and ‘long’ terms is to find the time period that is meaningful to your own circumstances.

Question 41

What is the typical time frames for the short, medium and long term?

Answer 41

It is useful to base the length of a short-term plan on how often you receive regular income, time frames highlight the key financial decision in planning: ‘What do I receive and how am I going to use it?

Many people base their medium-term financial plans on a period of one year, because a year is a ‘complete’ period during which all regular events happen, including religious and secular events (such as Christmas or Divali), birthdays and holiday.

Long-term planning spans several years; a ten-year plan is a popular period. All of the events that could happen in these 10 years make a difference to that person’s financial needs, wants, attitudes and aspirations, and they can be incorporated into a long-term plan.

Question 42

Why do people not save for a pension at a young age?

What can people do to avoid this?

Answer 42

In 20 years’ time, today’s young people may be concerned with the costs of raising their own children, moving to a bigger house and, eventually, retiring from work. It can be difficult for a young adult to incorporate old age into their current plans: retirement seems to be so far away, and many people in their teens and 20s find it impossible to give up things that they would like to buy now so that they can have a pension in later life.

As the years pass, that person might find themselves in their 50s without any savings and with no private or occupational pension to supplement state pension. To avoid this, many people make pension arrangements as soon as they find a regular job. They may, for example, choose to start making regular direct debit payments into a personal pension plan, or into an ISA, or to take out a whole-of-life life assurance policy (or even more than one).

Question 43

Why might someone have a long-term contingency plan?

What will they do with these savings?

Answer 43

Someone might have a long-term contingency plan whereby they aim to build up an amount of savings over the next five to ten years that they will use for anything unexpected that might happen. If they find that they do not need to use these savings to deal with such an event, they might use it instead for something exceptional – whether a large wedding reception or an expedition to the Amazon jungle. And remember: this exceptional long-term plan is the result of surpluses that the person has built up over the course of five or more medium-term plans spanning only a year.

Question 44

What does interlocking time periods in your financial planning help ensure?

Answer 44

By ensuring that you build interlocking time periods into your financial planning, you will be able to keep the longer term in mind while living your everyday life.

Question 45

Why is it harder to plan for in the long term?

Answer 45

It is harder to plan for the long term because there are so many unknown variables that might affect your plans. There are personal factors, such as changes in someone’s wants and aspirations, or changes in their needs. There are some factors over which they have only limited control. There are also external factors over which people have no control. This does not mean, however, that planners should not take the longer period into account and make the best plans that they can with the information that they have now.

Question 46

When a significant event happens what should the first course of action be?
What does this enable?

Answer 46

When something happens that significantly affects someone’s financial plan, their first course of action should be to revisit the plan to assess exactly what the impact is likely to be. This will enable the person to change their plans to take the new circumstances into account and, where possible, to keep the planning on track to achieve their medium-term and long-term objectives.

Question 47

If someone has a longer-term goal that needs financing, what is the best thing they can do?
Why?

Answer 47

Different people have different approaches to setting themselves goals and achieving aspirations. If, however, someone has a longer-term goal that requires money to finance it, it is best that they plan for that goal rather than leave things to chance. The key is to act now to make some provision for the future. Individuals do not know what will happen to them in the future, but if they have some money saved or a plan to work their way out of debt, their life choices are less constrained by their finances.

Question 48

Why must there be flexibility in a budget?

Answer 48

There must be a certain amount of flexibility in a budget because changes in circumstances mean that things will not go according to plan; the longer the term of your budget, the more likelihood there is that the actual outcome will be different from what you had hoped. If you keep an eye on how things are going, then it is easier for you to make adjustments so that you can still achieve your long-term aspirations.

Question 49

What do people’s long-term goals depend on?

Answer 49

People’s typical long-term goals will, of course, depend on their stage in the life cycle. Teenagers and young adults are likely to have aspirations regarding the job or career in which they want to be established by the time they reach the age of 30. By their mid-20s, leaving home, getting married, entering into a civil partnership or simply cohabiting, perhaps starting a family and buying a home – perhaps by the time they reach the age of 40 – may feature in many people’s medium-term or long-term plans. Very long-term plans will be focused around pension planning for retirement.

Question 50

What does planning for long term aspirations require?

What is the first step when trying to cover for this?

Answer 50

Planning to achieve long term aspirations will involve someone making a lot of assumptions about how secure their job is, the likelihood of pay increases and promotions, the effect of economic boom or bust, and what is going to happen to interest rates and inflation.

No one can predict precisely how these variables are going to change over a 10-year or 20-year planning period, but there are things that someone can do to try to anticipate their impact. Identifying what your long-term goals are will be a good first step and it should be possible to estimate roughly how much money you will need to achieve your goals. When deciding what kind of house you would like to buy and in what area, in five or ten years’ time, for example, you can first get an idea of the likely cost if you were to buy now. You might then look at some different possibilities, eg that there could be a house price boom or a crash over the term of your plan, or that prices could stay the same.

Question 51

Briefly describe the journey of average UK house prices (since the late 1970s).

Answer 51

Average UK house prices have changed in real terms (taking the general rate of inflation into account) since the late 1970s. There have been prolonged periods – notably, from 1982 to 1989, and from 1995 to 2008 – during which prices rose steadily year by year. Each boom ended with a sharp fall in prices, which also lasted several years.

Question 52

What do most people base their financial plans on?

Answer 52

Requiring that you estimate the impact of all of the possible changes in relation to every significant external variable is, of course, unrealistic. Most people will base their plans on the present values of incomes and prices, and then simply build enough flexibility into their plans to enable them to adapt whenever a significant change occurs.

Question 53

Along with changes in external factors, what else can affect financial plans?

Answer 53

It is not only changes in external factors that can affect financial plans, but also changes in personal circumstances, eg changes in family circumstances. The age at which someone moves into their first home of their own, or has a child, or how long their first serious relationship lasts can all potentially impact on personal financial plans. The death of an elderly relative may bring an unexpected inheritance, while having to care for an ageing parent may have a negative effect on finances. Again, you can anticipate both the likelihood and the effects of some of these changes – and having clear, realistic plans in place, with the flexibility to adapt and amend them when personal circumstances demand, will give you the best chance of maintaining sustainable personal finances and achieving your long-term aspirations.