Financial planning for beginners explained

Financial planning is a process that can help you reach your goals, identify the best financial products for you, and get the most from your money. It gives you the skills to put your own personal financial plan into action, no matter what stage you are at in life.

On this page, we’ll take you through the steps of financial planning in Ireland, how to create your own financial plan, and what to consider along the way.

Financial planning is about assessing your financial situation to set financial goals and develop strategies to achieve them. This could mean looking at your income, expenses, savings, investments, taxes, retirement plans, estate planning, and insurance needs. While financial planning in Ireland is also used by businesses to manage their resources and investments, here we will focus on personal financial planning.

There are six main areas of financial planning: cash management, estate planning, retirement financial planning, investment planning, insurance planning, and tax planning. Of course, the areas you choose to focus on will depend on your circumstances. 

A well-crafted personal financial plan basically acts as a guide for your finances. It can give you actionable strategies to tackle any problem areas, while also helping you reach long-term goals like retirement. Importantly, financial planning is an ongoing process that should evolve with your changing circumstances.

Most people have both short- and longer-term goals they want to achieve in life. Financial planning can help prioritise these goals by estimating the necessary funds required to attain them. Not only that, you gain useful financial skills and knowledge, like budgeting, getting on top of your debts, and taking advantage of tax savings. 

A thorough financial plan might even take into account factors such as inflation and potential risks that could affect your finances. It can help you decide what you should be doing with your money and prepare for unexpected challenges that may arise. By taking a proactive approach, you can better stay in control of your finances and steadily work towards important savings milestones.

But it doesn’t have to be complicated. It can start with something as simple as putting some extra cash away each month. If you have a financial plan in writing, you have a tangible, measurable target to work towards. You can track how much progress you are making and make any adjustments along the way to help you stay on course to meeting your goals.

There are five main steps to work through in the financial planning process. These steps are:

1. Assess your financial situation: Take a look at what you’re earning, as well as your savings, debts, and spending habits, to gain some clarity on your current financial situation.

2. Set financial goals: Decide what you want to do with your money, whether that’s saving for a mortgage, putting some money aside for retirement, or building an emergency fund.

3. Research financial strategies: From high-interest savings accounts to investment options, get clued-up on what will help you reach your goals. 

4. Implement your financial plan: Start putting your chosen strategies into action.

5. Review and adjust your financial plan: Regularly check your progress and make necessary adjustments to stay on track and adapt to any changes in your financial situation.

In the following section, we’ve expanded on these five points to provide more details.

The first step in personal financial planning is to assess your current financial situation. Try to gather as much information as possible about your income and where your money is going. Include any savings, investment income, and assets. And don’t forget to factor in any outstanding debt you have.

One way you can do this is by creating a budget. You can use an online template, such as our budget planner, or you can find many financial planning examples online for inspiration. This will give you a clear picture of where you stand financially and provide a foundation for the next steps.

No financial plan is complete without an achievable goal to work towards. This could be something short-term like saving for a holiday, or it could be a longer-term goal, such as buying a house, saving for your child’s university education, or planning for retirement.

Once you have a clear understanding of your income, expenses, and financial goals, the next step in your financial planning journey is to get researching. Which products or financial strategies would be most beneficial to you? This decision should align with your specific circumstances and the priorities you identified in the first two steps.

In the next sections, we’ve set out some options you might include.

One popular budgeting strategy is the 50/30/20 rule. Allocate 50% of your post-tax income to “needs” (essentials like rent/mortgage and groceries), 30% to “wants” (non-essentials like eating out, holidays, and hobbies), and 20% to savings or debt repayment. This method helps you manage your money consistently and adjust your spending as needed.

• Pay off high-interest debt: By tackling this debt before you start saving, you can avoid cancelling out the interest earned on your savings with the interest accumulating on your debt.
• High-interest savings accounts: It’s easy to put money in an account and lose track of its earnings. Take a moment to compare savings accounts - you might be surprised by how much more you could earn. At Raisin Bank, we offer competitive rates on fixed term deposits. You can choose a term that suits you, ranging from three months to five years, allowing you to work out how much you’ll earn in advance.

• Savings plans: To make saving easier, consider automating transfers to your chosen savings account at regular intervals. This takes the effort out of saving, eliminating the need for manual transfers. When combined with the 50/30/20 rule, it can help you to establish a disciplined and hassle-free savings routine.

• Stocks and shares: Investing in stocks and shares can offer higher returns if you’re willing to take some risks and invest for the long term. Remember, investments can go down in value, and you could lose money.

• Savings bonds: Savings bonds offer a relatively low-risk investment option. For example, State Savings in Ireland are government-backed, ensuring tax-free returns for investors. The government guarantees the repayment of all State Savings, providing savers with complete protection.

It’s never too early to start planning for life after work. By doing so, you’ll have enough not only to get by in your later years, but also to fully enjoy this phase of life.

Relying solely on the state pension may prevent retirees from falling into poverty, but it’s often insufficient for a comfortable retirement. To truly thrive during retirement, many people in Ireland contribute to either an occupational pension or a private pension plan.

Planning for the event of your passing may not be pleasant, but it is a responsible step, especially if your family depends on your income. From simply reading up on the inheritance laws in Ireland to drafting a will, deciding how your assets and finances will be managed after your death can offer peace of mind to both you and your loved ones.

As part of this process, consider what types of insurance might be necessary. Life insurance and income protection can provide financial security for your family.

Now that you’ve completed all the preparatory work, you can get started with the strategies that you’ve identified as most useful to you.

It can be easy to get carried away with saving for future goals and dreams, but neglecting your emergency fund could leave you vulnerable. When putting your financial plan into action, keep in mind that whatever your goals are, it is generally recommended to have some money set aside for emergencies.

Financial experts recommend setting aside enough to cover three to six months of living expenses. This fund acts as a safety net for unforeseen financial challenges such as car repairs, home maintenance, or sudden job loss.

If you want to set up a separate savings account to avoid the temptation of dipping into your fund, you might want to opt for a demand deposit account. This way, you can access your funds, replenish them, and earn a little interest, too.

Financial needs change as life goes on. You might start with one goal, only to face unexpected obstacles or emergencies that disrupt your financial timeline. Also, changing jobs can alter your budget significantly.

Like any good plan, it’s important to remain flexible. A personal financial plan isn’t just a static document; it’s a living document that can be modified as your circumstances evolve. And these financial planning ideas aren’t meant to be followed rigidly; rather, you can adapt them to fit your unique situation.

While knowing the steps of financial planning is helpful, it can be overwhelming to manage it all on your own. Financial planning in Ireland covers a wide range of areas, often making it difficult to determine the best course of action for your finances. 

If you have the option, involving a financial advisor can make the whole process easier. This is especially true for areas like pensions, which have intricate rules that vary based on your profession.

Here are some areas where a financial advisor can provide guidance:

• General financial planning ideas

• Pensions advice

• Mortgage advice

• Insurance advice for you and your family

• Tax advice, including payslip analysis

We have a set of guides that can help you with these topics:

If you’re starting to get your finances in order, you might want to explore your savings options. A key aspect of financial planning is making sure you’re getting the best interest rates on your savings. Discover a wide range of high-interest fixed term and demand deposit accounts on the Raisin Bank marketplace. Sign up for a free Raisin Account today to get started.