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What You Should Know About Financial
Planning
You may have come across the term "financial
planning" recently and wondered what it means. You
may have decided to start your own financial plan but
you're not sure how. Or you may feel it's time you went
to a financial planner for some professional advice.
Whatever your situation, the following information can
help you decide what's right for you.
What Is Financial
Planning?
Financial planning is the process of meeting your
life goals through the proper management of your
finances. It is a process that consists of specific
steps that help you ascertain your financial condition
objectively.
The financial planning process consists of six steps
that help you take a big picture, look at where you are
financially. Using these six steps, you can work out
where you are now, what you may need in the future and
what you must do to reach your goals.
The process involves gathering relevant information,
setting life goals, examining your current financial
status and coming up with a strategy or plan on how you
can meet your current situation and future plans. Click
here for more
details on the financial planning process.
The Benefits of
Financial Planning
Financial planning should provide direction and
meaning to all your financial decisions. 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 therefore adapt more easily to life changes and feel
more secure that your goals are on track.
Can You Do Your Own
Financial Planning?
Some personal finance software packages, magazines or
self-help books can help you do your own financial
planning. However, you may decide to seek help from a
professional financial planner if:
What Is A Financial
Planner?
A financial planner is someone who uses the financial
planning process to help you figure out how to meet your
life goals. The planner can take a "big picture" view of
your financial situation and make financial planning
recommendations that are right for you. The planner can
look at all of your needs including budgeting and
saving, taxes, investments, insurance and retirement
planning. Or, the planner may work with you on a single
financial issue but within the context of your overall
situation. This big picture approach to your financial
goals sets the planner apart from other financial
advisers, who may have been trained to focus on a
particular area of your financial life.
Be Sure You're
Getting Financial Planning Advice
The government does not regulate financial planners
as financial planners; instead, it regulates planners by
the services they provide. For example, a planner who
also provides securities transactions or advice is
regulated as a stockbroker or investment adviser. As a
result, the term "financial planner" may be used
inaccurately. To be sure that you are getting financial
planning advice, ask if the adviser follows the six
steps described below.
The Financial
Planning Process
The financial planning process consists of the following
six steps:
1. 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. The planner should explain
fully how he 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.
2. Gathering client data,
including goals
The 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 financial planner
should gather all the necessary documents before giving
you the advice you need.
3. 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 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.
4. 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. The planner should
also listen to your concerns and revise the
recommendations as appropriate.
5. 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 stockbrokers.
6. Monitoring the financial
planning recommendations
You and the planner should agree on who will monitor
your progress towards your goals. If the planner is in
charge of the process, she should report to you
periodically to review your situation and adjust the
recommendations, if needed, as your life changes.
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