How a financial professional can help you protect yourself and your family

SWOT analysis is a hugely useful business tool.  The acronym stands for “Strengths, Weaknesses, Opportunities and Threats”.  Strengths and weaknesses are internal to the organisation, while opportunities and threats are external.  In principle, the concept can work just as well in the private world, in practice, it can be quite a challenge for a person to analyse their own situation from an objective perspective.  This is why it can be very helpful to get an opinion from a friend.  When dealing with finance, however, a friend may simply not have the necessary knowledge to be able to offer you meaningful guidance, hence the benefit of speaking to a financial professional.

Understanding your strengths and weaknesses The basic principle of protecting yourself and your family is understanding how to make the most of your strengths and minimise your weaknesses, but it may take a bit of a jump to picture how your situation and lifestyle translates into financial terms.  For example, you may be aware that you benefit from having two sets of grandparents close by to support you with childcare and general help, but you may never have stopped to think about how much money this saves you and, therefore, never thought to take any precautionary measures about what you would do if they became unable to help let alone what you would do if they required your help.

Opportunities and threats In financial terms, it might be better to think of this as “plans and budgets”.  Everyone will have their own idea about how they want to live their life and different dreams will require different levels of finance to turn them into a reality.  Added to this, there is the simple fact that the longer you can give yourself to accumulate the funds you need, the easier it can be to achieve your goal.  For example, if you need to save £100 and you give yourself two years in which to do this then, essentially, you only need to save £1 per week (and you can give yourself four weeks in which you don’t save anything) whereas if you only give yourself 10 weeks, then you must save £10 per week without fail.  Of course, this is a very simplistic example, which ignores matters such as interest (and its compounding) and investment returns (versus the loss of losing your capital), but it illustrates how useful it can be to make an early start on working towards your life goals.

The golden rule of effective risk management The golden rule of effective risk management is that you must know what the risks are in order to be able to manage them and, life being what it is, you may well find that the nature and extent of those risks will change as your life changes.  For example, for young adults in the pre-child and pre-mortgage stage of their lives, the main risk may be of accident/illness with the corollary of being able to work as a result.  Even in this period of a person’s life, however, they may wish to think about how their death might impact the people they love, for example, not being around for parents as they age, and take steps to mitigate this.  As a person moves on through life, the nature and extent of the risks might change and increase, particularly if they buy a home and/or have children.  This fact of life means that in order for risk management to be effective, it must be appropriate to the nature and level of risk and this, by extension, means that it must be updated as circumstances change.  A financial professional can help to look at a person’s life situation from an objective perspective and help them to determine the right level and form of cover at any given time in their life.