Financial Planning

Financial Planning - Personal

Financial Planning - Personal
Financial planning (personal) is a process by which a person's or family's material resources are harnessed to help them meet their life goals. The financial planning process is generally led by a financial planner and results in some form of written financial plan. The financial plan will generally include these major areas: cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners). The key defining aspect of financial planning is that through the financial planning process, all questions, information and analysis are considered as they impact and are impacted by the entire financial and life situation of the client. Even if only one specific financial planning issue or question is being considered at a given point in time, all aspects of the person's life will be considered in the analysis.
The Financial Planning Process
The most widely accepted description of the financial planning process in the U.S. is the Six-Step Financial Planning Process proscribed by CFP Board .
1. Establishing and defining the client-planner relationship.
2. Gathering client data, including goals.
3. Analyzing and evaluating your financial status.
4. Developing and presenting financial planning recommendations and/or alternatives.
5. Implementing the financial planning recommendations.
6. Monitoring the financial planning recommendations.
The personal financial planning process according to ISO 22222 is a similar six-step process as follows:
Step 1: Setting goals with the client.
Step 2: Gathering relevant (qualitative and quantitative aspects of the client's financial and relevant non-financial situation) information on the client.
Step 3: Analyzing the information.
Step 4: Constructing a financial plan.
Step 5: Implementing the strategies in the plan.
Step 6: Monitoring implementation and reviewing the plan.
The Financial Planner
Someone must DO the six-step process. Either the consumer implements the process themself or they hire someone to do it for them
Do It Yourself
The Pros of doing it yourself include:
1. You don't have to pay someone else, so that saved money is available for helping you achieve your goals.
2. Who knows you and what you want better than yourself.
3. You mitigate the risk of having someone misappropriate your money or give you advice that is not in your best interest.
The Cons of doing it yourself include:
1. You probably do not have the skill set that a professional has to offer.
2. It is difficult to remove your emotions from your financial decisions.
Hire a Professional
The Pros of hiring a professional include:
1. A truly competent and ethical professional financial planner brings a wealth of knowledge and wisdom to the process.
2. A professional probably has access to resources (for both analysis and implementation) that you would otherwise not.
3. A professional can make recommendations based on your state goals and resources, detached from any personal or emotional issues that might otherwise stand in your way.
4. A professional can hold you accountable for your stated intentions.
The Cons of hiring a professional include:
1. It is difficult to figure out who is truly competent and ethical. ("To address these risks, consumers likely will turn to credentials as a proxy for quality and trustworthiness.")
2. It is often dangerous and irresponsible to give up any control of your own finances.
3. It can be very expensive.
4. The recommendations of a professional adviser will usually, out of necessity, be heavily influenced by what is likely to be acceptable to the client, and to that extent will not be detached.
5. It can be uncomfortable, and may be unsafe, to divulge personal and private information to another person.
The Financial Planning Association offers this insight into when to do it yourself and when to hire a financial planner:
If you have the time and knowledge — and your financial situation is not too complicated — you may be able to do a lot of it on your own. However, there are some situations where you may find you need a financial planner, such as:
•You have little or no experience with finances;
•You don't have the inclination to do it;
•You want an objective, outside perspective;
•You have a complex financial situation; or
-and this is usually the biggest obstacle for "do-it-yourselfers" —
•You don't have the time
Procrastination is the greatest enemy of financial independence, and using a financial planner will keep you on track. There are some other advantages to using a planner. Some aspects of financial planning may be too complex for most people, such as calculating how long your retirement capital will last or maximizing tax strategies. A good financial planner will work with other professionals, such as stockbrokers, accountants, and insurance agents, to coordinate their efforts with your overall financial needs.
The Benefits of Financial Planning
The benefits of financial planning are myriad. But in fact, everyone has a financial plan. "Doing nothing" can be considered a plan ... it is just a bad plan. The old saying goes, "people spend more time planning their Thanksgiving dinner than they do planning their finances." Even the most basic financial plan can have positive effects. A few examples of these benefits are:
* Knowing that your family is financially provided for if something happens to you.
* Being able to send your children to college.
* Being able to take a family vacation without incurring debt.
* Paying the lowest amount of taxes as is legal.
* Using your money to benefit something you believe in.
* Having some money left over at the end of the week/month to do something fun.
* Sleeping better at night.
* Having your savings working as hard for you as you worked for it.
* Being able to share experiences with those you love.
* Knowing when you will be able to retire and what your finances will look like in retirement.
The Financial Planning Association offers this description of the benefits of financial planning:
How do you know if you could benefit from the services of a financial planner? You may not have the expertise, the time or the desire to actively plan and manage certain financial aspects of your life. You may want help getting started. You may benefit from an objective, third-party perspective on what are often emotional, difficult decisions. And in today's hectic world, it can be beneficial to have a financial planning expert help to make sure you stay focused and follow through with your financial plans.
Often a specific event or need will trigger the desire for professional financial planning guidance. These might include:
•Making sure your money will last during retirement or rolling over a retirement plan
•Handling the inheritance of a large sum of money or other unexpected financial windfall
•Preparing for a marriage or divorce
•Planning for the birth or adoption of a child
•Facing a financial crisis such as a serious illness, layoff or natural disaster
•Caring for aging parents or a disabled child
•Coping financially with the death of a spouse or close family member
•Funding education
•Buying, selling or passing on a family business
What is Life Planning?
Life Planning is a version of financial planning. Life planning is defined as "a process of helping people focus on the true values and motivations in their lives, determining the goals and objectives they have as they see their lives develop, and using these values, motivations, goals, and objectives to guide the planning process and provide a framework for making choices and decisions in life that have financial and non-financial implications or consequences." (Anthes & Lee, 2001)

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