| Financial Planning |
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Comprehensive Financial Planning is a process of taking a holistic view on client’s financial information so as to meet his financial objectives in an efficient and disciplined manner. Financial planning is a highly personalised service that requires a thorough understanding of the process involved. It requires constant attention as the needs of the client changes as time passes by.
There should be a strong bonding of trust between the financial planner and the client. Financial Planner is just like a doctor who will take care of your financial health and will advise you always in such a manner to maintain and increase your wealth. The first and foremost issue involved in the financial planning process is to lead the client in setting clearly defined goals. Also, the planner through his conversation should be able to establish quantifiable goals.
Once specified and quantifiable goals are established and categories in short, medium and long term, a financial plan can, then, be developed keeping in mind client’s current circumstances and risk appetite. While preparing the plan, planner is required to make certain trade-offs so that the client can have free cash inflows at regular intervals for the rest of his life.
Broadly a good financial plan seeks to address the following:
The current generation retires at its own time and on its own terms
he current generation will never become a financial burden to its children and will be able to support its parents
This generations capital will endow meaningful legacies to succeeding generations
The children will be able to afford the best education
That the family’s life style and all the abovementioned goals will not be compromised by the premature death or critical illness of the bread winner.
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| Its Increasing Relevance in the Present |
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Scenario
Each of us has financial goals in life. But not many of us take disciplined and systematic approach to achieve them. These financial goals can be classified broadly into two categories. Firstly comes the commitments that are usually family oriented and include providing decent accommodation for family, children's upbringing and education, taking care of parents and other family members if any, etc. These goals are common for every person and always act as the prime concern for everyone.
Dreams and aspirations are the secondary goals. These goals are different for everybody and are personalized in nature. For instance someone wants to go on a world tour, have a bungalow in Nariman Point, wear designer brands, own a Ferrari, the list can go on and on. They give a new meaning to life and reason to work harder.
The skill lies in prioritizing our aspirations. Most of the times, our primary financial goals sooner or later turn into financial worries, if not planned timely. Also some other factors like uncertain economic conditions, changing legislation, the proliferation of new financial products and lack of time make it difficult for consumers to use their resources effectively.
In this regard, financial planning helps an investor to develop well-defined goals and chalk out appropriate strategies to turn dreams into reality. There is a need for a financial planner to plan the money you earn for whole life in well planned manner which will help to fulfil your goals in an efficient manner. A well-designed financial plan can help you in optimal utilisation of your resources and, along the way, give you a greater sense of financial security. |
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| Financial Planning Process |
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Financial Planning process, generally, consists of a series of 6 steps. These are as follows:
Identifying the goals: It is the foremost step that requires establishing current and future financial goals. These goals should be prioritized and categorised in short, medium and long term goals. The quantification of each goal is also necessary to gauge the amount needed for each goal at the required point of time.
Data Gathering:Gathering all information about the current income, expenses, assets, debts, liabilities and risk profile. This data will provide the clear picture of current financial status and will help in estimating the future cash flows and household budget.
Analysis of financial data:This step includes the analysis of the current & future cash flows and net worth. At this stage, one should use scientific techniques and concepts proven over years in the field of investments in calculations and projections. After analyzing the data, certain shortfalls or excesses will come into the focus. The estimation of financial gaps is very important so that right investments shall be started at the earliest to cover the shortfalls.
Preparation of Financial Plan: Now, the roadmap can be laid that will help you accomplish your goals, given your risk tolerance and time frames. The preparation of financial plan also includes identifying various asset classes & investment instruments that suits your needs at the best. The plan may call for several changes such as diversifying your investments, shifting your asset allocation, increasing your insurance coverage, or drafting wills and other estate planning documents. The plan may also call for longer-term actions such as altering your spending and saving habits over time.
Implementing the plan:This is the step where things are put into actions. Implementing your plan may involve opening certain types of accounts like bank, demat, trading or purchasing certain types of securities, policies, funds or other financial and investment-related products. The implementation should be done immediately and the recommended actions should be made at the earliest. One should also stick to the plan while implementing it.
Reviewing the plan periodically:Financial planning is not a one time exercise, rather it is a continuous process. For the successful planning, it should be reviewed periodically (generally quarterly and at least once in 6 months) or at a major event in the life. It also involves keeping an eye on the performance of your investments, periodically re balancing / churning / restructuring your portfolio.
Individuals who feel that the whole financial planning exercise is beyond them are always advised to consult professional financial planners. Also, the involvement of specialty areas like investment, insurance, income tax, estate planning and retirement planning makes it sensible to ask for professional assistance at least at the beginning. |
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| What is the Financial Planning Process? |
Financial planning is the process of establishing personal and financial goals and creating a way to reach them.The ongoing process involves taking stock of all your existing resources, developing a plan to utilize them, and systematically implementing the plan in order to achieve your short- and long-term goals.The plan must be monitored and reviewed periodically so that adjustments can be made, if necessary, to assure that it continues to move you toward your financial goals.
The personal financial planning process consists of the following six steps:
Establish and define the client-planner relationship. The personal financial planner should clearly explain and document the services that he or she will provide to you and define both his/her and your responsibilities during the personal financial planning engagement. The personal financial planner should explain fully how he or she will be paid and by whom. You and the planner should agree on how long the professional relationship should last and on how decisions will be made.
Gather client data, including goals. The personal financial planner should ask for information about your financial situation. 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 personal financial planner should gather all the necessary documents before giving you the advice you need.
Analyze and evaluate your financial status. The personal financial planner should analyze your information to assess your current situation and determine what you must do to meet 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.
Develop and present financial planning recommendations and/or alternatives. The personal 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. The planner should also listen to your concerns and revise the recommendations as appropriate.
Implement the financial planning recommendations. You and the personal financial 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 process with you and other professionals such as attorneys, accountants or stockbrokers.
Monitor the financial planning recommendations. You and the personal financial planner should agree on who will monitor your progress towards your goals. If the planner is in charge of the process, he or she should report to you periodically to review your situation and adjust the recommendations, if needed, as your life changes.
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