Financial Planning Process

Financial Planning Process

Financial planning, especially at an early age can help to give your life focus and help you to achieve your goals in life. Financial planning gives you a set of tools to create wealth and build up a nest egg that you can use in case of emergency. Financial planning also gives you direction, direction you need to make informed decisions about investments so that you won't make any mistakes and you can reap the benefits for the rest of your life.

The Financial Planning Standards Boards (FPSB) defines the financial planning process as consisting of the following six steps. We have just reproduced the exact process prescribed

• Establish and define the client-planner relationship:
  The financial planner should clearly explain and document the services that he or she will provide to clients and define both his/her and clients responsibilities during the financial planning engagement. The financial planner should explain fully how financial planner will be paid and by whom. The client 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 financial planner should ask for information about client's financial situation. The client and the planner should mutually define the client's personal and financial goals, understand your time frame for results and discuss, if relevant, how the client's feel about risk. The financial planner should gather all the necessary documents before giving the clients the advice they need.
• Analyze and evaluate your financial status:
  The financial planner should analyze the client's information to assess the current situation and determine what must be done to meet the client's goals. Depending on what services the client's have asked for, this could include analyzing the client's assets, liabilities and cash flow, current insurance coverage, investments or tax strategies.
• Develop and present financial planning recommendations and/or alternatives:
  The financial planner should offer financial planning recommendations that address the client's goals, based on the information provided by clients. The planner should go over the recommendations with clients to help you understand them so that the clients can make informed decisions. The planner should also listen to the client's concerns and revise the recommendations as appropriate.
• Implement the financial planning recommendations:
  The client and the financial planner should agree on how the recommendations will be carried out. The planner may carry out the recommendations or serve as the client's coach, coordinating the process with the client and other professionals such as attorneys, accountants or stockbrokers.
• Monitor the financial planning recommendations:
  The client and the financial planner should agree on who will monitor the client's progress towards your goals. If the planner is in charge of the process, he or she should report to the client periodically to review the situation and adjust the recommendations, if needed, as the client's life changes.

Financial Planning Facts:

• Financial Planning is a Process and discipline: Any Financial Plan provides a brief on your financial goals and a way to achieve them. It can help you focus on your financial resources and goals, and create a plan of action for attaining your dreams. However, your situation will change constantly over time, due to changes in your personal circumstances or in external circumstances. As a prudent person, you should review and update your Plan periodically; to be sure it still meets your needs.
• Financial Planning is Not Precise and provides 'No Guarantees': The projections or results of any Financial Plan are not precise and are often based on the information provided plus many assumptions & workings. The future is uncertain and planning for large number of years in advance is difficult. One should use Financial Planning for guidance in order to plan for the foreseeable future and do regular review of the same. Prudent financial planning may increase your chances for success, but cannot guarantee your goals will be achieved.
• Financial Plan – Understanding assumptions/ disclosures is important A Financial Plan is often based upon many assumptions and has certain inherent limitations attached to it. Further,there are also many other features, issues which you would like to know beforehand. Such assumptions, limitations, features, issues, etc. should be detailed in financial plan and you should through the same at leisure. The information includes assumptions about future returns on products, your income growth, inflation assumptions, etc., disclosure on calculation methodology and limitations, etc.