How important is money in a job search
A jobseeker’s financial situation The planning of your financial resources is particularly important in a transitional phase such as a change of jobs, and you need to consider your current resources and resources that may become available at “that” very moment (such as golden handshakes, severance pay, etc).
The steps for correct financial planning have to be simple:
- analysis of total wealth
- outlining of objectives and financial requirements
- precise definition of personal constraints, such as degree of risk and timeframes
- analysis of the social security position
- analysis of the insurance position
- property analysis.
1) Analysis of the current Portfolio
Consists in evaluating the percentage weight of the Asset Classes and the individual products held in your portfolio. It is essential in this phase to understand whether the portfolio is suitably diversified and whether the products that make it up are consistent and efficient for achieving your financial objectives. When you make this assessment you should also consider, if applicable, the impact on your overall wealth from assets such as works of art or other collectable items.
2) Defining of Objectives
On the basis of your objectives, you can define the ideal Asset Allocation and select the financial products to keep in your portfolio, given that for each specific objective there are suitable and efficient financial instruments for achieving your personal objectives.
It is quite normal for there to be a number of different objectives at any one time so you’ll need to develop a scale of priorities based on the size of a commitment or its urgency. The most typical objectives include capital conservation, i.e. the protection of your portfolio from inflation or losses.
In particular, in a phase of professional transition you will need to consider the need to create reserves of financial resources that can be used immediately when you (temporarily) have to live without a monthly salary.
Moreover, during a professional transition you need to carefully evaluate your financial requirements for any independent working activity/business taking into account both your initial current expenses (before you even have revenues coming in from the new business), and any fixed capital investments.
Another medium term objective is to obtain a sum in the future, i.e. invest your money to get a higher sum at a future date.
3) Personal constraints
These represent a fundamental factor in financial planning, given that they will determine your propensity to take risks and the investment timeframe – the investment timeframe is the time you are willing to do without your capital, in order to invest it and obtain future returns, while risk propensity represents your capacity to tolerate fluctuations (which could even be sudden and violent) in the price of the financial products you invest in and as a result the total value of your portfolio. Risk and Return are concepts that are directly connected as they essentially represent two sides of the same coin. The 2008 financial crash taught us that there is no such thing as returns without risk and this means that every asset class and every single financial product can generate losses. Too many savers ignore or underestimate this notion, so even though in theory everyone is willing to be “exposed”, when all is said and done, nobody wants to lose a dime.
In evaluating the risk profile for an individual investor – for adequate financial planning – you need to accept that this is influenced by a series of variables, such as the financial objective, the investment timeframe, the individual’s line of work, their wealth and income, as well as their age, gender, experience with financial markets, level of education and specific financial knowledge.
Each specific financial objective MUST be calibrated on the basis of an individual’s investment timeframe and the level of risk they are willing to take to achieve it. For example, if your main objective is that of maintaining your level of wealth, you would have to identify and use financial instruments with a very low risk profile and short-term investment timeframe. So each objective that you plan will require different financial products and a resulting distinct asset allocation, as well as distinct and specific investment timeframes and financial risks.
4) Social Security Analysis
Here the main purpose is that of identifying, analysing and quantifying a Saver’s cash requirements during retirement, to offset a lower income and top-up the shortfall compared to their last salary.
5) Insurance Analysis
This is useful in financial planning, as the aim is that of covering the biggest risks, i.e. those stemming from rare events that could compromise a person’s wellbeing or that of their family. The main risks to be covered are predecease, disability and the long term. For property investors a good policy against fire or damage caused by climate or exceptional factors is essential.
6) Property Analysis
In sound financial planning, the valuation of an individual’s property is also extremely important. The purpose is that of analysing information relating to the properties you own: type of property (residential, office, commercial activity or agricultural land), location, market value and state of the property/maintenance. Thereafter, for properties that are rented out, there needs to be a precise analysis of management costs, cash flow and ordinary and extraordinary expenses. The property analysis will also often include a fiscal analysis with the aim of evaluating the impact of taxes on the properties in a portfolio. This analysis will determine whether it is efficient from a fiscal perspective to have properties in your name or whether they worsen the fiscal burden for you and individual members of your family.
