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Financial Planning Pyramid
The answer if you don't know where to begin planning

The financial planning pyramid is one of the most useful tools to make your plan, partly for its simple logic and partly for the ease with which it can be adapted to your personal circumstances. Here is the pyramid:

financial planning pyramid

The financial planning pyramid is used from the bottom to the top, keeping in mind that as you rise higher in the pyramid both risk and potential profits increase.

Levels of the financial planning pyramid

The three levels of the pyramid are:


This is the stage where you cover the most basic risks which could affect you beginning with:

  • Unavoidable risks (death, sickness, accidents, etc.) of which you can normally cover with insurance policies and wills.  Another unavoidable risk which we looked at before in this article, is the fact that you could be without work or income (if you're self-employed), so in your particular situation you may want to consider the possibility of having an extra source of income to assure you financial security.

  • Within the likely risks, the most important are the debts you now have or those which you are assuming day by day. For these your plan should include the reduction of these debts if they are now, or likely to be a problem in the future.

Wealth accumulation

Once you're protected and according to your objectives and your risk profile (how comfortable you are taking risks) you can begin to accumulate wealth through:

  • Savings, creating funds for events such as your retirement, emergencies, you and your children's education.
  • Building your investments using such investment vehicles as: bonds, shares, mutual funds, exchange traded funds (ETF), etc.
  • Speculation with other kinds of investments with higher risk such as: futures, commodities, real estate, foreign exchange, etc.

Wealth Distribution

This stage concerns the gratifying task of passing on the fruits of your labor to your loved ones or whoever you wish in an effective manner, taking into account the unavoidable risk of your death.

It is important to plan this aspect because, depending on the country where you live, inheritance taxes and procedures can greatly reduce what's left of what you dedicated your life to build for your heirs.

Taxes and your financial planning pyramid

As you can see in the preceding illustration, tax planning should be part of every moment of your general plan.

This is because taxes often affect most of the activities and transactions which you make in spite of the insurance you have, the retirement plans you choose, the investment vehicles you use and the estate plans you make.

In addition, you must always remember that the higher you are in your financial planning pyramid, the risk is greater, and even more so if you are lacking in financial knowledge and you either don't have the time or don't wish to undertake to learn about it.

For this, as you progress you'll repeatedly face the need to seek professional help to assist you in making decisions, which, in my opinion, is one of the best decisions you could make.

Additionally, to assist your tax planning there are some great online software programs available from companies like Turbo Tax and H&R Block. Turbo Tax even has a new Turbo Tax Military Edition.

Applying what we've learned to your case

To apply what we've just seen to your own situation you can use the answers to the following questions:

1. If you write down all you now have (insurance, retirement plan, investments, etc.) and you compare this to the financial planning pyramid -- which level are you on?

2. Can you say that you have adequately covered the base of the pyramid (Protection) before going to the next level?

3. Are there areas that still need attention?  What are they?

If you have questions of a general nature, feel free to Contact us.

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