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Financial Planning

At the outset, financial planning refers to analysing your current situation, identifying where you want to be in the future and charting the financial way forward to achieve your goal. With a big picture view of your financial situation, you shall be better geared to work towards your goals and bring in changes which would go a long way in meeting your expected goal.

What are the benefits of Financial Planning? The biggest benefit of financial planning is that it steers your day to day financial decisions towards achieving your long term goal. It helps you to evaluate the short term & long term effects of every decision. An example can be investing in a product which can help you create capital which would be used to purchase a home in next 10 years.

Who can do the Financial Planning?

Any one can do their financial planning. There are lot of free material available these days on the internet and specialist literature can be purchased from book-stalls which can help you plan your finances. However, you may still decide to hire a professional financial planner if:
  • You know that you need to improve your financial situation, but do not know where to start from.

  • Your daily life doesn't allow you to take out spare time to analyse your finances.

  • You already have done your planning, but want a professional opinion before executing your plan.

  • You do not have the required skills in specific areas of finances such as risk analysis of your investments, identifying tax implication of your financial plans, etc.

How is Financial Planning done?

Financial planning involves a series of steps which are as follows:
  • Establishing the relationship where the scope of the financial planning and the remuneration provided to the financial planner are discussed;

  • Financial planner then goes ahead to gather client data which includes asking several questions and analysing the current financial situation of the client. This also involves analysing information such as assets, liabilities, cash flows, insurance protections, etc.

  • The required financial goal which the client wants to achieve in the future is understood and is made on objective basis so that the goal can be quantified and monitored. For example, instead of having a goal 'I want to retire as early as possible' have a goal 'I want to retire by the age of 45'.

  • Based upon above, the financial planner would offer a financial plan to achieve the goal. This may involve restructuring of existing assets and liabilities, for example repaying or taking on extra loan or selling a debt mutual fund and invest in equity mutual fund, etc. Each of the recommendation is discussed in detail with the client to ensure that meets the requirements of the client. Any concerns are duly noted and the financial plan is adjusted accordingly.

  • Once the plan is agreed, the actual implementation is carried out. This may be done by hiring additional resources such as stock brokers, insurance agents and solicitors.

  • Most financial plans fail as they are not monitored on a regular basis. Either the financial planner or the client themselves may choose to monitor their progress against the plan. It may be possible that due to changing economic conditions, changes may be required to towards the execution strategy of your financial plan.

An important thing to keep in mind with regards to Financial Planning is that you are the focus of financial planning process. And the more interactive a financial planning process is made, the more successful it becomes.
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