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The Financial Planning Process

Financial planning is the most crucial decision of one's life. If you start planning early, you can get out of whole a lot of financial mess arising later in life. It is very common to spend more than what we earn. We have many facilities like credit cards, buy now pay later schemes, installment facilities and so on, which compel us to overlook our finances. At the end of the month, when bills keep pouring in our mail boxes, we find ourselves in a sticky situation. And this mounting bill payment adds a semi-colon to our long term dream of owning our own house. Sometimes, medical emergencies also forces us to dig into our children's education fund. Marriage plans of your only daughter? Let's borrow some money from the retirement fund. There goes the trip to Egypt, you have been planning all those years!

The answer to all the above mortifying financial situations is 'Financial planning'. Financial planning 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 situation 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.

Six Steps of Financial Planning Process
  • Establish Mutual Relation
    The financial planner should develop trust and respect with you. The purpose is that both parties should know what is to be expected. During this stage, the services that the financial planner will offer you, should be discussed. It is also the right time to decide how will the financial planner be compensated for his/her services. You can also come to a decision as to who will keep a track of the finances once 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 determine 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 provided by you regarding your financial goals. The planner should explain the recommendations and inform you about all the minor details. This will help you decide your financial move. The planner should also be able to come up with alternatives, if you are not satisfied with the recommendations offered.
  • Execution of Financial Planning Recommendations
    The planner becomes your guide during the implementation of the recommendations of the financial goals. The planner 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 provide you with periodic reports on your financial situation. If there are any sudden changes in your life, he should be able to provide you with alternatives for the same.
It is wise to set goals which are achievable. You should take into consideration all the possibilities that can affect your life due to your financial decisions. It is good to start early in life and not wait till you near 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. It is always better to be well-prepared 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.


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