The Most Important Ingredients in a Financial Plan – Introduction

//The Most Important Ingredients in a Financial Plan – Introduction

One good thing that has come out of lockdown is that it’s given us all a little bit more time to think and contemplate over what’s important and what isn’t.

One of the things I’ve been thinking about over the last few weeks is ‘what are the important ingredients for a successful financial plan’ and ‘how can I embed these ingredients into my clients lives’?

I think I’ve established a credible answer.

Are you all sitting comfortably? Good, then I’ll begin…

The 1st and probably the most important ingredient is to have a goal or a vision of what you’re working towards and what you want to achieve. You MUST be able to answer the following questions:-

“What does a life well lived look like?”

“What’s your money for?”

“What’s REALLY important to you?”

This is the start, the middle and, in fact, the ending point of a financial plan. Your financial plan should not start with questions such as ‘what is your income and expenditure?’ and ‘what are your assets and your liabilities?’.  The money is simply a tool to be used to help you achieve what will make you happy.  So, the plan needs to start with the questions above so you can actaully relaise what does make you happy.

Likewise, your plan should not then be measured against an investment benchmark.  It should be measured and monitored against how successfully you have been able to answer those questions, both during, and at the end of, your financial planning life as a result of the plan that’s been put in place.

The real success of your financial plan is based on how many times you say ‘can you remember when we did so and so’ versus how many times you said ‘if only we would have done so and so’

In fact, without answers to the questions above then you don’t really have a financial plan.  You just have a financial circumstance.


Our motto at Ideal ‘it’s not about your money, it’s about your life’  is therefore not just a logo or a quirky phrase- this is the bedrock of all that we do and what we believe. If you don’t have a financial plan, then there’s no point having a financial planner. It’s akin to having a car on the drive but you have no desire to go anywhere .

Once you know what you’re trying to achieve you can then put a plan in place to achieve it.  Onve you have a plan, you can also monitor its progress…and by monitoring your progress you can identify whether you’re on track or not and then make any necessary changes.

Let me also explain to you what happens to those that don’t have a financial plan.

  • You get distracted by ‘the noise’.

The media know how to get your attention.  They know your pain points and they know how to communicate to you to get you to listen to their channel or buy their product.  Once you realise that their main goal is to get your attention, you can then understand why, sometimes, their goal is not to be truthful, but to be interesting.

“The markets are falling”

“Brexit negotiations are at a standstill”

“Trump is out…no, wait, he’s back in…no, he’s out”

“COVID-19 19 figures are up, we’re locking down”

COVID-19 figures are down, we’re opening up”

“We have a vaccine”

“Asia announce their biggest trade deal”

“Tariff agreements are in chaos (one of their favourite words) between China and America”

The noise never ends.  It never has and, whilst the world is turning, it never will.

In the meantime, let me tell you what happens in the markets during all these headlines…

They go up quite a bit and then they come down a little bit.

Decade in out, decade out.  They go up quite a bit and then they come down a little bit.  3 steps forward and one step back (sometimes it varies, and it goes 5 steps forward and 1 step back!)

That also never ends, and it never will when progress is the key to market efficiencies.

  • The noise convinces you that you should REACT.

Hmmm….so if Brexit negotiations are at a standstill, should I reduce exposure to the UK? To Europe?  To both?

China and America in chaos?  How much do I have in the US Stock market?  Should I sell?  Should I sit in cash for a while? Hey, what about Gold?  Is NOW the time to be in Gold.  That man on Youtube says it is…let me just check what he said again.

And so, the vicious cycle of reactionaryism (not sure if that’s a word but I like it) starts.  And guess what….this takes you away from all the key components of a successful financial plan.  Remember them?  Peace of mind.  The ability to say yes to a weekend in Prague with friends? Knowledge you can retire and maintain your lifestyle?

You know what the media is?  It’s the child in the back of the car on the way to seaside screaming “Are we there yet”? “How many more miles?”   “He’s hitting me” “I need a wee”

And all this noise means you’re spending your time looking over your shoulder and stressing about what’s happening in the back of the car rather than focusing on the beach ahead of you.  It also makes you look at your spouse and say, “I thought were we supposed to be enjoying this?”

The media should NOT have any foothold in your financial plan.  Your goals, objectives and the vision of your ‘life well lived’ should be the focus.

  • The ‘noise’ will make you worry if you don’t react.

So, you can’t win.  You worry about making the right move AND you worry about making no move.  Even though studies show that the more people react to what’s just happened (rather than doing nothing) the weaker the long-term investment performance of your portfolio will be.  This is because you’re likely to be acting too late.  The fact is that risk is already built into the market.   Markets do react widely at times (you’ll know about it because the noise will tell you) but they don’t always react to what’s just happened – most of the time they anticipate what’s going to happen.  Brexit, for example, is already largely built into the market.

So, by the time you hear about it, the markets have reacted (or have already bult it in months ago) and now you want to catch a plane that left yesterday!  Worse still, you’re now at risk of selling something that’s gone down in value to buy something else that’s gone up in value.  The truth is the stock market is the only place where people buy more when the price is high and then sell more when the price is low.  We don’t do that with any other commodity.

“Hey love, have you seen the price of these Nike trainers?  They were £60 yesterday but now David Beckham’s wearing them on the cover of Hello magazine they’ve gone up to £120!”

“Really?  Quick, buy 3 pairs before they come back down to £60 again.”

So, what does having a plan do?

Well, apart from the opposite of everything above, it also now gives you some meaningful metrics that you can base the success of your plan on.  Once you cut through the noise I believe there are only 4 key meaningful numbers in a financial plan, and they are-

  • The rate of investment return required to achieve your goal
  • The annual savings (or lump sum) that you need to invest to achieve your goal
  • Your spending capacity – the amount you can spend each year without the fear of running out of money
  • Your capacity for loss figure

My following articles on this subject will expand upon what these 4 metrics do and the reasons why they are the most important things to focus on.  Stay tuned!


About the Author:

Brian Butcher is a Director at Ideal Financial Management Ltd and has been giving financial advice for over 25 years. He is also the Author of ‘10 steps to Financial Success - how to get the best life you can with the money you’ve got’ Available on Amazon at