How the “financial planning pyramid” emphasises the importance of protection

Category: News

At Globe IFA, we use many tools to help you formulate a long-term financial plan. From our decades of experience to the cashflow modelling software we use and the questions we ask, our planners are well-placed to help you achieve your goals.

Whatever your dream, we can help you to get there. Whether it’s early retirement, moving into your forever home, or providing a legacy to your children and grandchildren, our approach is designed to enable you to reach your financial goals.

But reaching this pinnacle without a solid foundation is incredibly hard.

And that’s where the financial planning pyramid comes in.

The planning pyramid emphasises the importance of protection

A financial planning pyramid helps you to visualise the structure of your plan, highlighting the elements that are the most important and the priorities you’ll need to consider.

It looks something like this:

It comprises four levels, with your legacy at the top of the pyramid. Remember, this isn’t just about what you pass on when you die, but your whole intergenerational wealth strategy, including giving while living.

The middle two levels focus on the pensions and investments that will help you to live your dream retirement, as well as the day-to-day saving and budgeting that helps to make this possible.

At the base of the pyramid is the foundation on which all of this must be built – protection.

Let’s take a look at each level in turn, beginning with the most important.

Level 1 – Protection

When we first began working together, we will have asked you several questions designed to help us understand your circumstances in the present.

These will have concerned your income and expenditure, your disposable income, and your capacity to withstand a financial shock.

Only once we had a good grasp on your starting position did we move on to your aspirations. Financial planning is about understanding a starting point and an end goal and plotting the smoothest course between the two.

Strong foundations are crucial.

Wherever you are on your journey, protecting what you have now (and could have in the future) is key. This is especially true if you have dependents.

That’s why at Globe, we make protection such a high priority.

We’ll ask you to think about some simple questions:

  • What would happen if you had an accident or illness, or lost your job?
  • Could you and your family maintain a roof over your heads if the worst happened to you?
  • What do you want to happen to your wealth when you die and are your wishes known?

We can help you to put a will in place. Speak to us now about our ongoing partnership with Penrose Wills.

You might also think about other forms of protection like life insurance, critical illness cover, and income protection, should your employment cease, even temporarily.

These steps have the obvious financial benefit of a payout should the unexpected occur. They are also the “scaffolding” that holds your plans together, helping you to continue adding to your savings and making pension contributions. During a difficult time, your long-term financial plans could collapse without protection in place.

There are non-financial benefits too. The peace of mind that comes from knowing that you and your loved ones will be looked after, no matter what the future brings, will give you confidence and a sense of control. This is crucial as you head further up the pyramid.

Next stop, Level 2.

Level 2 – Savings

Once you have a sturdy foundation, it’s time to start thinking about your day-to-day finances.

That means managing your household budget now, and potentially, looking for areas where you can make economies. Increasing your disposable income frees up cash to pay off any high-interest debt, build an emergency fund, and begin saving for your future.

Once you have children, you’ll want to begin saving for them too.

Level 3 – Investments

Last month we looked at how to effectively manage your rainy day fund in the current economic climate and found that savings might not be sufficient in the current high-inflation environment.

Investing might be the right option for you, but it requires a certain amount of risk. It is best done once you have a sturdy foundation of protection and rainy day savings in place.

While the value of your invested funds can fall as well as rise, we’re here to help you manage that risk.

That means helping you to understand:

  • Your risk profile
  • Your capacity for loss
  • The need for diversification.

Investing for a long-term goal – for at least 5 to 10 years but ideally even longer – means that you have plenty of time for the potential of inflation-beating returns with a portfolio aligned with your goals.

With our decades of experience, we can help you ignore the noise of short-term volatility and stay focused on your future self.

Level 4 – Estate planning

In addition – perhaps later in life – you’ll start to think about the legacy you want to leave behind.

This might be on death, through your will. But there are other ways to leave a legacy too. “Giving while living” is becoming an increasingly popular way of passing on your wealth.

Making use of HMRC gifting exemptions can make a living legacy incredibly tax-efficient and you’ll be around to see the good your money does too.

Get in touch

Whether you have questions about protection, savings and investments, or estate planning, we’re here for you at every step. Please email or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you.

Please note

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. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.