In this contribution, my aim is to open up the components that make up financial planning by dissecting the main financial needs that need to be addressed. Financial planning is not just about investing money; it is about a holistic fulfilment of various needs.

There are three main components – protection, retirement and managing wealth. Each of these individual goals address a specific need but together form holistic financial planning. None of the protection, retirement and managing wealth needs can be seen as a one-off. You may have to address an immediate need as a priority, however, they all contribute towards your financial planning journey, which evolves according to your life stages.

Let us start off with protection. To create a solid foundation for your financial planning journey, ensuring you as well as your loved ones are protected, is the place to start. Being adequately protected provides peace of mind and there are a number of protection covers to address different needs. For example, you may need to protect yourself to ensure that you still receive an income to meet future mortgage obligations in the event of a critical illness or a permanent or total disability.

Having addressed potential protection needs, one may need to start thinking about the years ahead.  It is never too early to start planning for your retirement; ensuring you have saved enough money to maintain your lifestyle in retirement is essential. Sound financial planning will help you realise your ambitions and investing on a regular basis will help you build a sum of money to support your retirement needs.

The reality is that people are living longer and one may not be able to rely solely on the state pension to maintain a good quality of life in retirement. So think about addressing your retirement needs, start saving something today while also benefitting from the tax credit incentives that are attached.

Inflation will erode your purchasing power

So you are now protected and you are also saving for your retirement. As you progress through your life cycle, you may also have accumulated a sum of money which is parked in your bank account. Interest rates have hit record lows over the past years and this low interest rate scenario may stay with us for a longer period of time. With interest rates on a savings account practically at zero per cent, your money is losing value due to the impact of inflation.

Inflation will erode your purchasing power and effectively you will need to pay more than the current price to buy the same thing in the future. So is your money growing enough to beat inflation? Simply placing your money into a savings account may not be enough, as the combination of inflation and low interest rates will likely cause the value of your hard-earned cash to gradually erode over time.

While the value of an investment can fluctuate, investing your money into financial instruments that can potentially counteract the impacts of inflation is another potential need to be addressed as part of your financial planning journey.

Although these three components address specific needs, they are intertwined and each is an important link in the chain. You may have invested your cash into a diversified portfolio in order to grow and potentially beat inflation, but you still need to address your protection need. The likelihood is that contrary to your plans, you will have to abandon your investment aspirations and potentially dip into your capital to address the unexpected consequences caused by illness.

You may have a good protection plan, but no retirement plan. While you have a plan B to cover for an unexpected illness, you would still have to think about how to sustain your lifestyle when you retire, without relying solely on the state pension.

It is only when you consider the potential gaps not just in one area but across all of the protection, retirement and managing wealth spectrum, that one can achieve a holistic financial planning state. 

And that is not the end of it. This is a lifelong journey, where it is critical to ensure that your financial planning needs remain aligned to your current life-cycle stage, risk appetite and goals. This is why regularly reviewing your position with your trusted financial planning adviser is of paramount importance. A qualified adviser will work with you to develop a strategy based on your current financial situation, your long-term goals and your attitude to risk. They will also be on hand to guide you every step of the way. 

Konrad Borg Myatt is head of wealth products, advice and sales fulfilment at HSBC Bank Malta plc.