Financial Planning Overview

In order to achieve your goals, you need a well thought out plan.  Before investing your money you should focus on making sure that your personal finances are in order.  Without understanding your cash flows it would be difficult, if not impossible to know if you are on track toward your goals or if you are taking too much or too little risk in your portfolio.

Financial planning is a multi-discipline approach to creating a roadmap for your financial future.  Comprehensive financial planning includes a six step process:

1. Establish and define your relationship with your financial planner.

Your 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. Gather data, including goals.

Your 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. Analyze and evaluate your financial status.

Your 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. Develop and present financial planning recommendations and alternatives.

Your financial planner should offer financial planning recommendations that address your goals, based on the information you provide.   Your planner should go over the recommendations with you to help you understand them so that you can make informed decisions.  Your planner should also listen to your concerns and craft alternative solutions as appropriate.

5. Implement the financial planning recommendations.

You and your 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. Monitor the financial planning recommendations.

You and your planner should agree on who will monitor your progress towards your goals. If the planner is in charge of the process, he/she should report to you periodically to review your situation and adjust the recommendations, if needed, as your life changes.

The financial planning process includes analysis in many areas.  Financial planning includes but is not limited to:

Insurance planning

Tax planning

Retirement planning

Estate planning

Investment planning

Education expense planning and

Planning for the small business owner

When considering financial planning:

  • Set measurable goals.
  • Understand the effect your financial decisions have on other financial issues.
  • Re-evaluate your financial plan periodically.
  • Start now – don’t assume financial planning is for when you get older.
  • Start with what you’ve got – don’t assume financial planning is only for the wealthy.
  • Take charge – you are in control of the financial planning engagement.
  • Look at the big picture – financial planning is more than just retirement planning or tax planning.
  • Don’t confuse financial planning with investing.
  • Don’t expect unrealistic returns on investments.
  • Don’t wait until a money crisis to begin financial planning.

About the author

Tom Orecchio, CFA, CFP®

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