When creating a financial plan, you often start with your goals. After all, setting out your aspirations first lets you create a plan that’s tailored to you. Yet, understanding your numbers is just as crucial for successful financial planning and they could help you understand the effect of your decisions.
So, which numbers are the key ones you should know?
The numbers you may want to track will depend on your goals
To keep your financial plan on track, monitoring key numbers will help you assess your progress and identify potential gaps. Read on to discover which numbers could be important in two different scenarios.
Ensuring your family’s financial security
If you have a family, a key priority might be to ensure their long-term financial security. You might want to set money aside to pay for milestones, like helping children go to university. You may also be worried about what would happen if you faced a financial shock.
So, questions like these could help you highlight the key numbers in your meaningful financial plan.
- What are your household’s day-to-day expenses?
- What is the balance of your family’s large financial commitments, such as a mortgage?
- Are there any planned one-off costs?
- How much do you have saved in an emergency fund?
- What percentage of your income is protected if you fall ill?
The answers to these questions may highlight gaps in your financial safety net, meaning your family is vulnerable to a shock. Or, that you would benefit from putting money aside to fund one-off costs, like supporting your child’s homeownership goals.
Planning for your retirement
When you’re planning for retirement, there are several key numbers you need to consider. For example, the answers to these questions could be important:
- How many years or months until you hope to retire?
- What percentage of your income are you contributing to your pension?
- What other income will you have during retirement?
- How much money do you need to fund your retirement, and how much will it need to grow to maintain spending power?
With these numbers you can create a plan that provides you with financial stability and peace of mind throughout retirement. Again, the results could help you identify potential gaps or indicate where you may need to compromise.
Key numbers help you forecast how your wealth will change
Cashflow modelling helps you see how your wealth and assets may change over the long term.
This is where knowing your numbers is important. Cashflow modelling is only as good as the data you input. So, taking time to understand the value of your assets and financial needs could be essential.
Cashflow modelling is key to helping you understand how the decisions you make now affect your long-term plans.
The results of cashflow modelling cannot be guaranteed as the outcomes will be based on some assumptions, such as investment returns. However, it can provide a useful way to visualise how your financial decisions could affect your long-term wealth.
Regular reviews to update your numbers are important. They also present an opportunity to ensure your financial plan continues to reflect your goals. Over time, your aspirations might change, and, as a result, you may want to adjust your financial plan or the data used in your cashflow model.
With regular financial reviews to track key numbers, you can focus on what’s most important to you.
Risk warnings
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate cashflow planning.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.