Financial planning is much more than just finding the right investment - increasingly, young people are employing sound financial advice that can set them up for the future and help them make good decisions to increase their wealth. Financial planners or advisors can help you find solutions to money problems, answer difficult questions that you may not have time to research yourself, and help you plan for your retirement.
However, their services also come at a price, and many young people may not want to spare the expense to hire a financial planner, but it can be more expensive in the long run if you make costly financial mistakes.
A financial planner is also not as expensive as most think if his/her services are only engaged when you are making major decisions.
"Traditionally, people go see a financial planner when they have a major life event. Perhaps they inherit money, start a family, buy a home or approach retirement," says Mark Rantall, CEO of the Financial Planning Association of Australia (FPA).
The type of financial planner you choose and the products you're interested in also depends on what stage you are in your life.
"The younger you are when you cotton on to the fact that you need to save and invest, to minimise your credit and phone debt and buy a house, the better," states Mr Rantall.
But where do you start and what kind of financial planner do you need? Read on to find out.
According to FPA, this is someone who has just finished their tertiary studies and started their first job. Financial advice appropriate for this age group (typically under 25 years) includes how to budget, identify goals, consolidate their super and select insurance policies, among others. Tax planning is also an area where a young starter may need help in, to help them claim tax deductions and offsets. A person with this profile may also be interested in setting themselves up and saving towards a home.
An accumulator can refer to young families or couples looking to gain financial security and perhaps accumulate assets, such as a home. In this case, you may need the services of a mortgage broker. According to the Australian Securities and Investments Commission (ASIC), a mortgage broker negotiates with credit providers to arrange home loans, getting you the best value for your money. However, you should always be aware of brokers that operate on commissioner - they may leave out a loan option from the list of product they recommend you if that provider doesn't pay commission.
Other advice you may need at this stage can include investment plans, savings plans, risk protection, income protection, managing super funds and drafting a will.
Consolidator and retiree
Lastly, a consolidator and retiree refers to someone just about to retire (in their fifties), who is looking to pay down any remaining debt and their mortgage, as well as ensure they have enough to retire on.
ASIC's Money Smart recommends that you sort out your finances by determining what assets you have and how much they are worth, as well as how much super you have and when you can access it. You should also find out if you are eligible for the age pension, using ASIC's calculator here. A financial planner should be able to tell you how you can grow your retirement income so you don't run out of money too soon, particularly if you intend to take a long holiday or renovate your home. A planner should advise you on how to pay off your mortgage and advise on estate planning.
In particular, estate planning should take into consideration the market value of your assets, their growth potential and what should be handed down to who. These assets can also include personal assets such as artwork and other collections, according to Seniors.gov.au.
Whatever plan or product you choose, remember that a good financial planner should act like an objective consultant and not "hard-sell" any products. Together with your planner, identify the goals suitable for you and develop strategies to work towards them, in order to achieve steady cash flow and a good financial position.