Financial Planning Process

Financial Planning process, generally, consists of a series of 6 steps. These are as follows:

Identifying the goals: It is the foremost step that requires establishing current and future financial goals. These goals should be prioritized and categorised in short, medium and long term goals. The quantification of each goal is also necessary to gauge the amount needed for each goal at the required point of time.

Data Gathering: Gathering all information about the current income, expenses, assets, debts, liabilities and risk profile. This data will provide the clear picture of current financial status and will help in estimating the future cash flows and household budget.

Analysis of financial data: This step includes the analysis of the current & future cash flows and networth. At this stage, one should use scientific techniques and concepts proven over years in the field of investments in calculations and projections. After analysing the data, certain shortfalls or excesses will come into the focus. The estimation of financial gaps is very important so that right investments shall be started at the earliest to cover the shortfalls.

Preparation of Financial Plan: Now, the roadmap can be laid that will help you accomplish your goals, given your risk tolerance and time frames. The preparation of financial plan also includes identifying various asset classes & investment instruments that suits your needs at the best. The plan may call for several changes such as diversifying your investments, shifting your asset allocation, increasing your insurance coverage, or drafting wills and other estate planning documents. The plan may also call for longer-term actions such as altering your spending and saving habits over time.

Implementing the plan: This is the step where things are put into actions. Implementing your plan may involve opening certain types of accounts like bank, demat, trading or purchasing certain types of securities, policies, funds or other financial and investment-related products. The implementation should be done immediately and the recommended actions should be made at the earliest. One should also stick to the plan while implementing it.

Reviewing the plan periodically:Financial planning is not a one time exercise, rather it is a continuous process. For the successful planning, it should be reviewed periodically (generally quarterly and atleast once in 6 months) or at a major event in the life. It also involves keeping an eye on the performance of your investments, periodically rebalancing / churning / restructuring your portfolio.

Individuals who feel that the whole financial planning exercise is beyond them are always advised to consult professional financial planners. Also, the involvement of specialty areas like investment, insurance, income tax, estate planning and retirement planning makes it sensible to ask for professional assistance atleast at the beginning.

What is the Financial Planning Process?

Financial planning is the process of establishing personal and financial goals and creating a way to reach them.

The ongoing process involves taking stock of all your existing resources, developing a plan to utilize them, and systematically implementing the plan in order to achieve your short- and long-term goals.
The plan must be monitored and reviewed periodically so that adjustments can be made, if necessary, to assure that it continues to move you toward your financial goals.

The personal financial planning process consists of the following six steps:
Establish and define the client-planner relationship. The personal financial planner should clearly explain and document the services that he or she will provide to you and define both his/her and your responsibilities during the personal financial planning engagement. The personal financial planner should explain fully how he or she 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.
Gather client data, including goals. The personal 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 personal financial planner should gather all the necessary documents before giving you the advice you need.
Analyze and evaluate your financial status. The personal 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.
Develop and present financial planning recommendations and/or alternatives. The personal 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.
Implement the financial planning recommendations. You and the personal financial 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 process with you and other professionals such as attorneys, accountants or stockbrokers.
Monitor the financial planning recommendations. You and the personal financial planner should agree on who will monitor your progress towards your goals. If the planner is in charge of the process, he or she should report to you periodically to review your situation and adjust the recommendations, if needed, as your life changes.

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