Setting financial goals and developing plans to achieve them is critically important for successful wealth management. That goes for everyone.
“One of the big misconceptions about financial planning is that it is for wealthy, married individuals with multiple dependents and complex inheritance needs,” says Fergus Moyles, head of private wealth strategy at Mercer Ireland.
“The reality is that we all have financial goals and requirements at every stage of our adult life, and a simple financial plan is a good structure for anyone trying to achieve these goals.”
In our early adult years, the focus may be on paying off loans, saving for our first home or protecting our income in the event of ill health. “Without a financial plan, we can veer off course and fail to achieve these goals,” he explains.
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As we age, the need for a financial plan typically increases. “Wealth often grows, as do families, and retirement plans might come more into focus,” says Moyles.
“As individuals move from their 20s into their 30s and 40s, it becomes even more important to have a financial plan in place to protect income, support family needs and achieve other financial goals such as saving for retirement or children’s education.”
He recommends starting the process by choosing a suitable, trusted financial planner.
Don’t forget the basics. “It is important to ensure that you have sufficient insurance cover in place to deal with anything unexpected from a health, life and illness perspective, before you start to think about your investment strategy,” says Alison McHugh, partner and head of private client services at EY Ireland.
“In developing a wealth plan, you should also consider estate and succession planning to ensure that any value which passes to the next generation, either by way of a lifetime gift or will transfer, is in a measured and tax efficient manner.”
Wealth management isn’t only about investments. It’s about making the most of your savings too.
Raisin, an online platform that acts as a marketplace for savings accounts across Europe, gives access to savings accounts from a variety of banks, many offering higher interest rates than Irish banks.
All are covered by European deposit guarantee schemes, protecting funds up to €100,000 per depositor, per bank.
“Savings have a role to play at every stage of life, whether you’re a kid, a teenager, a young adult or someone in retirement. Savings will always be relevant to you,” says Eoghan O’Hara, Raisin’s Ireland country head.
There is no hard and fast rule of thumb when it comes to figuring out how much of your money should be invested, and how much kept in savings, which typically offer a lower interest rate, but greater accessibility.
“Everyone’s circumstances are unique for the most part but, depending on what time of life you are at, all of us will need to have capital at hand, money to deal with short-term expenses that are either planned or unplanned, as well as emergencies, milestones to be marked and holidays,” O’Hara says.
To figure out what that ratio of savings to investments might look like, start by talking to a financial planner and, with their help, define clear goals in the form of short-, medium- and long-term financial objectives, he suggests.
If you have the luxury of being able to invest money for the long term and can accept the volatility risk of doing so, then it makes sense to do so.
Having 60 per cent of your net income to hand in an emergency fund is also a good rule of thumb to adhere to, he suggests. “It isn’t realistic for a lot of people, but it’s a nice buffer to have in case you get laid off or there’s a medical emergency or something like that. Having cash at your disposal for such events is always important because life changes.”
Apart from immediate needs, savings are also an important part of wealth management when putting money aside for a big event, such as a wedding. Here too, putting it in an investment fund may not always be the best option.
“If you’re planning on getting married in two years, for short-term goals like that people might like to look at a fixed-term deposit account to make sure that, at the very least, their money is garnering a return and their spending power isn’t being eroded,” says O’Hara.
“But for the longer term, when you’re really building wealth, that is where a financial planner comes into their own, because investing is a crucial part of that, whether paying into their pension fund or investing it in the market.”
Once you have one your wealth plan should be reviewed on a periodic basis to ensure that it remains fit for purpose. “Often investment portfolios will be reviewed on a quarterly basis but we would recommend that a comprehensive review of your wealth plan is undertaken annually and this should look at your goals, savings, investments, insurance and estate planning to ensure that it is aligned to your overall objectives,” says EY Ireland’s McHugh.
“It will likely need to be updated any time a major life event occurs. This could include marriage or divorce, birth of children, a career change, retirement or a change in your income profile or personal circumstances. These life events may also necessitate a change to your will and other estate planning.”
