The Financial Planning Process

WealthHow Staff Oct 12, 2018
The process of financial planning helps one plan their future systematically, in terms of finance. Here is the planning process, which involves six important steps.
It is essential that we have goals in life. Short-term goals include a good job, great career, and small investments. Long-term goals are buying a house, children's education, retirement policies, etc. Financial planning is a crucial decision of life.
If you start planning early, you can avoid financial mess arising later in life. It is common to spend more than you earn. Of course, there are facilities, like credit cards, buy now pay later schemes, installments, etc., which compel one to overlook finances. At the end of the month, when bills keep pouring in, you find yourself in a sticky situation.
And this mounting bill payment adds a semi-colon to your long-term dream of owning your own house. Sometimes, medical emergencies also forces you to dig into your children's education fund. Marriage plans for your only daughter? You borrow some money from your retirement fund. There goes the trip to Egypt, you have planned all those years!
The answer to all these mortifying financial situations is 'Financial Planning'. The planning process helps give a direction to your financial decisions. It helps you decide various investments that can bail you out of your financial problems.
For example, investment in mutual funds may help you repay the loan or save enough for your retirement. Once your financial goals are set, it helps make your life more secure and flexible for any financial emergency that may arise.
You can carry out your own financial planning by taking a guidance from self-help books, newspapers, magazines, the Internet, or discussing your financial needs with your spouse. If you feel, you can't handle it yourself, then opt for a professional financial planner.
Here is the complete process, explained, related to financial planning.

Six Steps of Financial Planning Process

It is important to be well versed with the entire process of financial planning. This will help you plan major updates of your life as well as unseen occurrences. It is you who needs to be in control of your finances, not the other way round.

Establish Mutual Relation

Develop a relation of trust and respect with your financial planner helps both parties know what to  expect. The services that the financial planner will offer should be discussed in detail. It is the right time to decide how will the financial planner be compensated for his/her services. You can decide as to who will keep a track of the finances invested.

Assemble Data

The financial planner will meet you and discuss your financial situation. You should come to a mutually agreed goal regarding your financial and personal goals. You should decide the time period and the expected results from your investments. You should be made aware of all the risks, if any, involved.
The financial planner should help you make the financial goals, which can be made possible from utilizing your current income into savings and investment program.

Estimation and Assessment of Current Financial Status

Your current financial situation should be assessed by your financial planner to decide the plan of action. This may include estimation of your current assets, liabilities, and cash flow. The insurance coverage, investments, and tax strategies are also considered.

Presenting Recommendations and Alternatives

The financial planner should prepare an investment program based on the information given by you about your financial goals. The planner should explain the recommendations and inform you about the minor details. This will help you decide your financial move. He should be able to come up with alternatives, if you are not satisfied with the recommendations.

Execution of Financial Planning Recommendations

The planner becomes your guide during the implementation of the recommendations of the financial goals. He takes decisions on your behalf and coordinates with your attorney and stock brokers.

Management and Auditing Financial Plan

You and your planner should decide who will keep a track of your investments. If your planner is in-charge, he should give you periodic reports on your financial situation. If there are any sudden changes in your life, he should be able to give you alternatives for the same.
It is wise to set goals, which are achievable during financial planning process. If you understand the importance of becoming financially stable, planning for the future will be very easy. You should consider all possibilities that can affect your life due to your financial decisions. It is good to start early in life and not wait till retirement age.
You should get over the notion that financial planning is for rich people. Investments should not be considered as financial planning. You should be in-charge of your money and monitor it at every step. It is wise to plan your finances according to your income.
Better be well-prepared financially, before a crisis comes barging at your door. In this unpredictable world, it is best to have a safe financial security, not just for yourself, but for the future of your whole family.