How to do financial planning

Updated on Jun 01, 2020

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You may have come across the term "financial planning" 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. No matter what category you’re in, attending a Financial Planning Day in your area can help you get the information and resources you need.

What Is Financial Planning?

Financial planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a home, saving for your child’s education or planning for retirement. The financial planning process involves the following steps:

• Gathering relevant financial information

• Setting life goals

• Examining your current financial status

• Coming up with a financial strategy or plan for how you can meet your goals

• Implementing the financial plan

• Monitoring the success of the financial plan, adjusting it if necessary

Using these steps, you can determine where you are now and what you may need in the future in order to reach your goals.

What isfinancial planning?

What Are the Benefits of Financial Planning?

Financial planning provides direction and meaning to your financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances. For example, buying a particular investment product might help you pay off your mortgage faster, or it might delay your retirement significantly.

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 also 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:

• You need expertise you don’t possess in certain areas of your finances. For example, a planner can help you evaluate the level of risk in your investment portfolio or adjust your retirement plan due to changing family circumstances.

• You want to get a professional opinion about the financial plan you developed for yourself.

• You don’t feel you have the time to spare to do your own financial planning.

• You have an immediate need or unexpected life event such as a birth, inheritance or major illness.

• You feel that a professional adviser could help you improve on how you are currently managing your finances.

• You know that you need to improve your current financial situation but don’t know where to start.

How to do financial planning How to do financial planning

Personalfinancial planning Seminar

Financial PlanningTopics

All financial planners volunteering at the Financial Planning Days are highly qualified to discuss a variety of financial topics, and those topics fall in the categories listed below, followed by a set of sample questions related to that topic.

GENERAL FINANCIAL PLANNING
Purchasing a Home – Should I buy or rent? What type of mortgage should I get?
Debt Management – How do I reduce my overall debt?
Building a College Fund – How do I finance my childs college education?
Savings Goals – How much money should I have in my emergency fund?
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SPECIAL CIRCUMSTANCES
Job Loss and Job Change – How do I financially plan for a job loss?
Foreclosure Assistance – How can I avoid losing my property to a foreclosure?
Change in Marital Status – How do I financially plan for a divorce?
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INVESTMENT PLANNING
Investment Strategies – How do I maximize gains and minimize taxes?
Asset Accumulation – How should I diversify my portfolio, given my risk tolerance?
Generating Investment Income – What investment vehicles should I consider to generate income?
Real Estate - Should I invest in real estate?
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RETIREMENT PLANNING
Building a Retirement Fund – What retirement vehicles should I consider when building my nest egg?
401(k) and 403(b) Plans – How do I pick the investments for my 401(k) or 403(b) plan?
IRA Accounts – Should I choose a traditional or Roth IRA?
Social Security – How much will I receive in Social Security benefits when I retire?
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INCOME TAX PLANNING
General Tax Return Filing – Should I file my taxes as single or married?
Tax Reduction Strategies – What tax deductions can I take?
Charitable Contributions – How do I maximize the tax advantages of my charitable contributions?
Small Business Taxation – How can I position my small business to minimize my taxes?
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ESTATE PLANNING
Building an Inheritance – What estate planning vehicles should I consider when building an inheritance?
Wills and Trusts – Should I set up a will or a living trust?
Estate Tax Strategies – How do I reduce my estate taxes?
Incapacity Planning – How do I appoint a Power of Attorney?
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INSURANCE PLANNING
Life Insurance Coverage – How much life insurance do I need?
Disability Insurance – Do I need additional disability insurance?
Long-term Care Planning – What kind of long-term care insurance should I consider?
Property and Casualty Insurance - How should I insure my home?
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EMPLOYEE BENEFITS
Managing Health Insurance – Does my family have adequate health insurance?
Health Savings Accounts – Should I open a Health Savings Account (HSA)?
Incentive Stock Option Plans – How is my investment income taxed?

Financial PlanningProcess

The financial planning process consists of the six steps listed below. While many financial planners are knowledgeable on a number of financial planning topics, some choose to focus their business on only some financial areas or on only a few steps of the financial planning process. Before you hire a financial planner, you should receive information that describes the specific services you can expect to receive.

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.

FinancialPlanning Process and Benefits

How to make FinancialPlanning Work for you

You are the focus of the financial planning process. As such, the results you get from working with a financial planner are as much your responsibility as they are those of the planner. To achieve the best results from your financial planning engagement, you will need to be prepared to avoid some of the common mistakes by considering the following advice:

• Set measurable financial goals – Set specific targets of what you want to achieve and when you want to achieve results. For example, instead of saying you want to be "comfortable" when you retire or that you want your children to attend "good" schools, you need to quantify what "comfortable" and "good" mean so that you’ll know when you’ve reached your goals.

• Understand the effect of each financial decision Each financial decision you make can affect several other areas of your life. For example, an investment decision may have tax consequences that are harmful to your estate plans. Or a decision about your child’s education may affect when and how you meet your retirement goals. Remember that all of your financial decisions are interrelated.

• Re-evaluate your financial situation periodically – Financial planning is a dynamic process. Your financial goals may change over the years due to changes in your lifestyle or circumstances, such as an inheritance, marriage, birth, house purchase or change of job status. Revisit and revise your financial plan as time goes by to reflect these changes so that you stay on track with your long-term goals.

• Start planning as soon as you can –Don’t delay your financial planning. People who save or invest small amounts of money early, and often, tend to do better than those who wait until later in life. Similarly, by developing good financial planning habits such as saving, budgeting, investing and regularly reviewing your finances early in life, you will be better prepared to meet life changes and handle emergencies.

• Be realistic in your expectations – Financial planning is a common sense approach to managing your finances to reach your life goals. It cannot change your situation overnight; it is a lifelong process. Remember that events beyond your control such as inflation or changes in the stock market or interest rates will affect your financial planning results.

• Realize that you are in charge – If you’re working with a financial planner, be sure you understand the financial planning process and what the planner should be doing. Provide the planner with all of the relevant information on your financial situation. Ask questions about the recommendations offered to you and play an active role in decision-making.

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