Financial planning covers a broad range of topics, and in the best cases brings them together in an orderly, integrated way. However, because it requires information and understanding of many complex topics, many people feel overwhelmed and tackle only small aspects of financial planning. Financial planning varies in scope and complexity ranging from planning advice that is straightforward and narrow, requiring limited integration across financial planning areas to those engagements that are complex and involved, requiring extensive integration across financial planning areas.
A financial plan is about more than just saving and investing. It’s a plan that helps you navigate your short, medium, and long-term financial goals toward a vision of your future. Understanding all of the elements that go into your plan will help you stay on track. Review of your financial situation.
What is Financial Planning?
Financial planning is a disciplined, multi-step process of assessing an individual’s current financial and personal circumstances against his future desired state and developing strategies that help meet his personal goals, needs and priorities in a way that aims to optimize the allocation of his resources. Financial planning considers the interrelationships among relevant financial planning areas in formulating appropriate strategies. Financial planning includes financial management, insurance and risk management, investment planning, retirement planning, tax planning, estate planning and legal aspects. Financial planning is an ongoing process involving regular monitoring of an individual’s progress toward meeting his personal goals, needs and priorities, re-evaluating financial strategies in place and recommended revisions, where necessary.
What is a Financial Planner?
A financial planner is an individual who possesses the requisite knowledge, skills, abilities and professional judgment to capably provide objective financial planning advice at the highest level of complexity required by the profession. He must agree to be accountable to a professional oversight organization’s practice standards and code of ethics include an obligation to put his clients’ interests before his own. A financial planner shall:
- Always place the client’s interests first
- Always act with integrity
- Be objective when providing advice or services to clients
- Develop and maintain the abilities, skills and knowledge necessary to competently provide advice or services to clients
- Be fair and open in all professional relationships
- Maintain confidentiality of all client information
- Act diligently when providing advice or services to clients
- Act in a manner that reflects positively upon the profession
What is a Financial Plan?
A financial plan is a document that details a person’s current financial circumstances and their short- and long-term monetary goals. It includes strategies to achieve those goals. It can help you to establish and plan for fundamental needs, such as managing life’s risks (e.g., those involving health or disability), income and spending, and debt reduction. A financial plan is a written report that assesses an individual’s current financial situation and includes the relevant personal and financial assumptions, information analysis, evaluation of financial strategies and recommendations to assist in achieving an individual’s personal goals, needs and priorities. Life is a long journey. Each new stage presents both financial challenges and opportunities. The key is to identify your needs, objectives and resources and understand what to expect during each phase of your life. The following steps can help guide you through this process as you develop, tweak and monitor a financial plan throughout your lifetime.
A financial plan is a written report that addresses an individual’s personal goals, needs and priorities. It takes into account relevant financial planning areas and the interrelationships among them. The financial planning areas include financial management, insurance and risk management, investment planning, retirement planning, tax planning, estate planning and legal aspects. Each section of the financial plan covers the individual’s current financial situation, the analysis performed to identify issues and opportunities, the evaluation of relevant financial strategies and recommendations to help meet the individual’s personal goals, needs and priorities. A plan includes the personal information and financial assumptions on which it is based. It also includes a disclaimer noting its reliance on information provided by the individual and assumptions made. A plan provides a list of action steps, including what needs to be done, by whom and when.
Why Do You Need a Financial Plan?
Life is full of competing priorities – some you plan for and some you don’t. You probably have an idea of the things you want to do that will require money. Things like buying a house, having children, paying for their educations and weddings, and having enough money for a comfortable retirement. But unexpected expenses like a broken-down car or medical bill can strain anyone’s finances. A financial plan can put you in control so you stay on track regardless of what life throws at you – saving and investing in the types of financial vehicles that are specially designed for your objectives. Working with a financial advisor can help you build a foundation so that life doesn’t take you – or at least your finances – by surprise. A financial advisor can advise you when there are changes in the markets, tax legislation or the economy, and can help you adjust accordingly. An advisor you trust, and a financial plan you create together, will help guide you through the ups and downs to stay on track toward your goals.
Can a Financial Plan Really Make My Money Grow?
Yes, your advisor will create a good financial plan to ensure your investments grow to meet your long-term needs. It can provide financial guidance so that you’re prepared to meet your obligations and objectives. It can also help you track your progress throughout the years toward financial well-being.
Who Needs a Financial Plan?
Everyone can benefit from financial planning. If you have short-term goals like paying off a credit card or loan, or long-term goals like saving for retirement or your child’s education, financial planning can help get you there faster. Whether you’re going it alone or with a financial planner, the first step in creating a financial plan is to understand how important it can be to your financial future. It can provide the guidance that assures your financial success.
Understand Your Needs
Your financial advisor typically begins by getting to know you and your family while gathering information about your current circumstances, your future goals, your concerns and your aspirations. During this phase, too, you and your advisor can discuss the strategies and services available to help solve the specific financial challenges you face.
Design a Comprehensive Plan
Depending on your circumstances, your plan may focus on a single objective or a more complex strategy. Your plan could be as singular as saving for retirement or a child’s education, monetizing a concentrated equity position, or establishing a trust to benefit a child with special needs. But, perhaps, you may require a complex strategy that includes help with positioning and selling your business, then deploying the proceeds, together with other investable assets, to deliver the income you need to retire comfortably. Or you may be in need of multiple solutions: not only selling your business and developing an effective plan for retirement, but establishing a charitable trust to fund your philanthropic desires.
Implement the Plan
In this phase, the planning is put into motion while collaborating with other relevant professionals as needed – whether Raymond James specialists or your current lawyer or CPA. The plan is based on your goals uncovered in previous steps of the advisory process and factors in your investment horizon, as well as the types and levels of risk that you can afford and with which you’re comfortable.
Manage the Plan Once it’s in Place
Financial planning is an ongoing process in which it’s essential to monitor the progress of your investments within the context of your goals and periodically review all relevant information. It may become necessary to adjust the particular components of your plan in light of changing circumstances and evolving objectives. Should economic and financial circumstances warrant, your advisor may also recommend tactical changes to your portfolio – while still adhering to your long-term goals.
Saving
It’s important to maintain an appropriate balance between spending and saving. Create a budget in which you spend less than you earn. Identify your more immediate needs, such as housing and utilities, and prioritize your wants, such as taking a vacation, buying a car or starting a family. Allocate a portion of your budget toward both short- and long-term goals. Equally important is managing and eliminating debt. If you have debt, you should develop a plan to systematically pay it down and avoid accruing new debt.
Emergency Cash
You should always keep some portion of your money as cash or cash alternatives in liquid investments like savings, chequing and money market accounts. Many financial experts recommend that you hold approximately three to six months’ worth of living expenses in cash and highly liquid investments.
Investing
Select investments best suited to your needs, constraints, obligations and goals. To mitigate volatility within your portfolio, develop a diversified asset allocation strategy designed to meet your financial goals yet reflect your tolerance for risk. When planning for retirement, start early and take advantage of the power of compounding interest, particularly in tax-advantaged accounts such as an employer pension plan.
