Guide to Financial Planning
The financial planning process is an ongoing process involving various steps. The end result is a financial plan which can, and will, change throughout time due to varying circumstances such as medical emergencies, unemployment, goal changes, and other life events. A good sound financial plan can be modified to suit changing needs.
First, financial planners will work with you to determine where you currently are. Areas included in determining your current situation include:
1) Net worth (what’s left after your liabilities/debt are subtracted from your assets)
2) Current income
3) Lifestyle (retired, middle class, travel a lot, etc.)
4) Risk tolerance
5) Financial responsibilities (current and long term)
6) Other living responsibilities
7) Financial resources (savings, investments, etc.)
8) From this information a financial profile will be developed.
As part of this profile, it would be determined what resources you need for maintaining your current lifestyle, a “needs assessment” if you will. A guide to what a “needs assessment” consists of is your:
1) Debt obligations
2) Housing costs
3) Food costs
4) Medical expenses
5) Any other recurring expenses (expenses happening on a regular basis)
The combination of these two areas results in a cash flow analysis – inflows (income) and outflows (expenses) in very simplified terms. A net worth analysis is another useful tool your financial planner would use as a guide during this assessment phase.
After assessing where you currently are and what you need, financial planners will work with you in determining your financial goals and objectives. It could be:
1) Financial security
2) Travel
3) A vacation home
4) Estate planning
5) Retirement planning
6) College funding
7) Entertainment
You need to know what you desire to achieve with your finances. Your financial planning guide will depend on this.
Before meeting with your financial planner, take some time to determine what you really want to achieve. You need to know your own financial goals and desires. They are used as guides in financial planning.
Have available both strategic and tactical goals. Both are guides in financial planning. The difference between the two is as follows:
1) Strategic goals are broad based such as “I want to go on a worldwide cruise,”
2) Tactical goals are narrower based. An example would be “I want to go on a worldwide cruise on my 60th birthday.”
Only you can determine what your goals and objectives are. Another way of viewing goals and objectives are that they are your hopes and dreams for the future.
When it is determined:
1) Where you are
2) What you need and
3) What your goals are
4) It is time for the financial plan to be developed.
Your financial planner will develop an individualized plan that is flexible, meaningful to you, and solid. This is the stage where the following come into play:
1) Emergency fund
2) Retirement planning
3) Investment planning
4) Tax planning
5) Debt management
6) Estate planning
7) Insurance needs
Your financial plan will be a detailed description of how you will go from step A (determining what you have) to step C (goals and objectives).
Quite often the financial planning process involves a group of experts known as “the financial planning team.” Each area of expertise involves an individual, or firm, specializing in that field. Specialists in the financial planning field can earn the designation of Certified Financial Planner (CFP). They are specially trained and educated in the entire financial planning process and provide the most rounded out knowledge regarding this area.
As additional examples of experts:
1) Tax planning may involve a CPA;
2) Estate planning either a CPA or attorney;
3) Insurance needs would be handled by an insurance agent;
4) Debt management by a debt consolidation expert;
5) An investment counselor would handle investments.
Each financial plan is personalized and unique. Some would require the use of a variety of professionals, some would not. Any way you look at it, proper financial planning will put you on the right track for your financial success.
This guide to financial planning only touches upon the complexity of this field. A professional financial planning expert will work with you to achieve your financial goals.
