Financial Planning Process – A Road Map to a Secure Financial Future

Posted by admin
on May 16, 2019

Would you leave for a trip to a new destination without a map? What if your goal is a prosperous financial future? Without a plan, would you know how to get there? Financial planning provides a road map for your financial life. It can make the journey less stressful, more fun, and more successful. And, you can start right now – even if only a few steps at a time. 

In today’s uncertain economy, financial planning has become increasingly important to both individuals and business persons. With an overwhelming number of options for saving and investing, managing your finances can be difficult. Creating a business plan helps you see the big picture and set long and short-term life goals, a crucial step in mapping out your financial future. When you have a strategy and a financial plan, it’s easier to make financial decisions and stay on track to meet your goals. Many competent, well-educated adults readily admit they struggle with even basic financial concepts. This isn’t surprising since most school curriculums don’t teach financial management principles. But this is where a professional financial planner comes into the picture. Financial planners work with people and help them coordinate and manage the financial aspects of life.

Unfortunately, many people are reluctant to work with a financial planner because they are unfamiliar with how the financial planning process works. The process of financial planning can generally break down into seven basic steps:

Preliminary Meeting & Evaluation

During an initial interview, the financial planner and the prospective client get to know one another. This generally involves a first meeting during which the planner explains the nature of services to be provided and how he or she is paid for these services. In turn, the prospective client has an opportunity to determine whether the planner has the ability to offer the types of services that are needed. The planner should take this opportunity to get some general idea of the prospective client’s current financial position and long-term goals. It is important for both parties that the relationship begins with mutual trust and confidence. If it is determined to proceed, the planner should then provide the prospective client with an engagement letter that serves as a contract setting forth the services to be provided, the charges for these services, and the client’s responsibilities during the financial planning process.

Gather Information & Establish Goals.

To be effective, the financial planner must gather a substantial amount of information about the client or the customers. The information collected can be either quantitative or qualitative. Both the short-term and long-term goals of the client must also be identified. Such goals might be to have adequate income in retirement or to provide for a child’s education. Once the goals have been determined, it is essential to prioritize `or rank them in order of importance.

Some of the critical financial and legal documents that are usually secured during the data-gathering phase include:

  • Wills, trusts, and powers of attorney
  • Personal financial statements
  • Budgets
  • Retirement plan statements, brokerage account statements, and mutual fund statements
  • Insurance policies (life, disability, health, and property and casualty)
  • Divorce settlements
  • Federal and state income tax returns
  • Buy-sell agreement

Analyze Information & Develop Plan

Here is where the planner takes the information obtained from the clients, considers the client’s goals, and develops a financial plan intended to help the client achieve his or her goals. To assist in the process, the planner will often use computer programs to supplement his written analysis and recommendations. At a minimum, a comprehensive analysis generally includes a review of assets, liabilities, current and projected income, and insurance coverage, and investments. If authorized by the client, the planner may also seek the assistance of other professionals.

Present Plan

This is where the financial planner meets with the client, explains the recommendations, and provides the client with a copy of the written plan. Once the client has a chance to review the plan, the plan may be revised based on client feedback.

Critical elements of a written financial plan are likely to include the following:

  • Review of the client’s goals
  • Analysis of the client’s current situation
  • Specific recommendations from the financial planner for helping the client get from where he is to where he wants to be (i.e., to help him achieve his goals).
  • An action plan designed to implement the financial plan

Implement Plan

This stage is probably the most important of all. If the client fails to follow through on the planner’s recommendations, the plan will be useless. Plan implementation involves acting on the recommendations identified above. This may include a variety of tasks, including the purchase and sale of investments, modification of insurance coverage, adoption of legal instruments, and changes in spending and savings habits. It may also include working with other professionals. Based on the nature of the relationship, some of the action items will be performed by the financial planner, while others will be the responsibility of the client. Most planners will handle implementation duties for an additional fee.

Monitor and check the Plan

Because circumstances change, financial plans need to be monitoring to ensure they remain relevant and useful to the client. This step involves evaluating the effectiveness of the plan in achieving the client’s objectives. Unsatisfactory progress or performance requires that corrective action is taken (e.g., a new investment mix must be selected).

Review Plan

Financial planning is an ongoing process. Because a client’s circumstances will change, the business plan needs to be adjusted accordingly. Clients get married, (or divorced), have new children, experience changes in health, change jobs, etc. All of these changes may require updates to the financial plan so that the client stays on track to meet his goals.

Also, as the economy changes, assumptions underlying the original plan need to be re-evaluated to make sure they are still relevant in the current economic environment.


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