Financial planning: it’s a concept capable of triggering contrasting responses. This is ostensibly because it’s a phrase loaded with interpretations, most of which are dependent upon a person’s age and financial objectives, whether short or long term.

Some folks glaze over at the very thought of planning their finances. Other more attentive and motivated sorts respond by sitting bolt upright, keen to discover how they may map out their financial futures. A number of financial advisers rightly believe that reaction to the concept is also determined by what people already know or have read.

Pre-pandemic, experts at University College London published research which concluded that the foundations to a happy and fruitful life are to be found by embracing five ‘life skills’ – the application of which should deliver health, wealth and success. Determination, control, optimism, conscientiousness and emotional stability are the five essential characteristics, which are equally applicable when considering an individual’s financial future.

With this in mind, the Institute of Financial Planning maintains that a solid financial plan can be created in half a dozen steps, starting with what is generally considered to be the most difficult (and time-consuming) one: establishing your life’s short, medium and long-term goals.

Of course, the further into the future we go, the vaguer our plans become. While the folks at UCL would undoubtedly urge us to be positive, it also pays to be realistic. Rainy days are a regrettable, but integral, part of life. To assume they will not appear, usually when least expected, is foolish.

Nonetheless, the Institute recommends that people ‘open their minds’ while thinking about future targets and suggest that, while the most worthwhile goals are not purely financial, money provides the means with which we can achieve our goals.

Yet listing ‘life goals’ can often end up looking like nothing more than a lengthy collection of ambiguous, indeterminate ambitions – an early version of a bucket list. While this is entirely normal, the next step is to eliminate the ones that are either least likely (such as playing up front for Liverpool), or of least value (playing up front for your local Sunday league team) and create a series of realistic targets.

The purpose of this exercise is straightforward enough: assuming your goals are reasonable and achievable, it’s possible to calculate the cost of realising them. This is accomplished by planning how best to organise your finances to ensure different targets are met at different times. It’s at this point that many people seek a second opinion, usually from an experienced financial planner. Considering the scale and implications of this undertaking – effectively costing out your life’s ambitions – running the preliminary conclusions (however bizarre they may appear) past someone who has seen and helped create hundreds of them makes good sense.

Financial advisers usually advocate early professional involvement in what is often a pivotal planning process to ensure that people are organised and in control of their finances rather than the other way around. A good financial planner can save enormous amounts of time, effort and money – not just at the opening, ‘life goals’ stage but beyond.

But what is involved following this usually prolonged opening phase, in the aftermath of a realisation that you will never grace Anfield’s hallowed turf? Most advisers seek to create a ‘mini balance sheet’ for clients, usually in the form of a ‘Fact Find’, which lists personal assets and liabilities.

They will also create a cash flow model – a future projection of assets, investments, debts, income and expenditure, calculated using assumed rates of growth, income, inflation and interest rates. The model’s accuracy is dependent upon the information used in its creation and, of course, it must be kept updated whenever there are changes to personal circumstances.

Though the Fact Find provides a financial snapshot, the cash flow model forecasts future projections of income and expenditure, which is pivotal to accurate financial planning. Cash flow modelling is beneficial for people who wish to manage their accumulated wealth, but is equally valuable for those with aspirations to achieve longer-term objectives who are currently building their net worth. The earlier the model is created, the greater the period of time a client has to meet their objectives.

There is another benefit: the planning process can be incredibly cathartic. Although, perhaps more predictably, it also incentivises people to go out and make things happen.

For more financial advice, check out Peter Sharkey’s regular blog, The Week In Numbers.