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Financial Planning

What is Financial Planning?

Financial planning is the process of pursuing your life goals through the proper management of your finances. Life goals can include buying a home, saving for your child's education or planning for retirement.

The Benefits of Financial Planning

Financial planning provides direction and meaning to your financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances. By viewing each financial decision as part of a whole, you can consider its short and long-term effects on your life goals. You can also adapt more easily to life changes and potentially feel more secure that your goals are on track.

You may decide to seek help from a professional financial planner if:

  • you need expertise you don't possess in certain areas of your finances. For example, a planner can help you evaluate the level of risk in your investment portfolio or adjust your retirement plan due to changing family circumstances.
  • you want to get a professional opinion about the financial plan you developed for yourself.
  • you don't feel you have the time to spare to do your own financial planning.
  • you have an immediate need or unexpected life event such as a birth, inheritance or major illness.
  • you feel that a professional adviser could help you improve on how you are currently managing your finances.
  • you know that you need to improve your current financial situation but don't know where to start.

The Financial Planning Process

ESTABLISHING AND DEFINING THE CLIENT-PLANNER RELATIONSHIP.

The financial planner should clearly explain or document the services to be provided to you and define both his and your responsibilities.

GATHERING CLIENT DATA, INCLUDING GOALS.

You and the planner should mutually define your personal and financial goals, understand your time frame for results and discuss, if relevant, how you feel about risk. The financial planner should gather all the necessary documents before giving you the advice you need.

ANALYZING AND EVALUATING YOUR FINANCIAL STATUS.

The financial planner should analyze your information to assess your current situation and determine what you must do to pursue your goals. Depending on what services you have asked for, this could include analyzing your assets, liabilities and cash flow, current insurance coverage, investments or tax strategies.

DEVELOPING AND PRESENTING FINANCIAL PLANNING RECOMMENDATIONS AND/OR ALTERNATIVES.

The financial planner should offer financial planning recommendations that address your goals, based on the information you provide. The planner should go over the recommendations with you to help you understand them so that you can make informed decisions.

IMPLEMENTING THE FINANCIAL PLANNING RECOMMENDATIONS.

You and the planner should agree on how the recommendations will be carried out. The planner may carry out the recommendations or serve as your "coach," coordinating the whole process with you and other professionals such as attorneys or accountants.

MONITORING THE FINANCIAL PLANNING RECOMMENDATIONS.

You and the planner should agree on who will monitor your progress towards your goals.

Best Practices When Approaching Financial Planning

  1. Set measurable goals.
  2. Understand the effect your financial decisions have on other financial issues.
  3. Re-evaluate your financial plan periodically.
  4. Start now - don't assume financial planning is for when you get older.
  5. Start with what you've got - don't assume financial planning is only for the wealthy.
  6. Take charge - you are in control of the financial planning engagement.
  7. Look at the big picture - financial planning is more than just retirement planning or tax planning.
  8. Don't confuse financial planning with investing.
  9. Don't expect unrealistic returns on investments.
  10. Don't wait until a money crisis to begin financial planning.