Financial Planning – The True Definition

Financial planning is a good idea for anyone with an income. Some people think of it as a synonym for retirement planning. However, financial planners are professionals who assist people in developing plans for many kinds of investments and expenses. Essentially, they help people earn, save and spend their money more wisely than they would if left to their own resources.

What Is Financial Planning?

The work of a financial planner can be broken down into several categories. Some of these categories of planning focus on the future, when a client plans to retire or hand over a business or estate to an heir. Others are focused on issues in the present or the near future, such as tax planning or simple cash flow management. However, all forms of financial planning follow certain elementary steps.

Varieties of Financial Planning

• Investment planning goes beyond simply purchasing financial instruments and other assets. An investment planner helps his or her clients think strategically about an investment portfolio. While an untrained client might let investments sit unprofitably for too long or trade too frequently to properly take advantage of profit margins, a financial planner can guide this client to earn more money from investments.

• A retirement planner assesses a client’s present economic status and prognosticates how much money that the client needs to earn from investments and savings in order to achieve financial independence by a specific age.

• Cash flow management is a type of financial planning which helps a client control income and expenses in order to save money. The goal of this management might simply be improvement in the quality of life for an individual. Financial planners can also help large businesses to improve their efficiency and their balance sheets.

• Estate planning anticipates death or incapacitation of a client and the distribution of his or her assets and belongings. A central part of this sort of work is writing wills and designating executors and heir.

The Financial Planning Process

• In the first step, the financial planner and the client set goals.

• Then the planner gathers financial information and other pertinent data about the client.

• Now the planner analyzes the information and determines what changes must be made to achieve the goals set during step one.

• The fourth step may require resetting goals in light of obstacles discovered during the analysis. Otherwise, client and planner devise a plan for meeting the goals.

• The planning team implements the plan.

• The sixth step is the longest phase of financial planning. The planner monitors progress toward the goals, often over a period of years or decades. Adjustments will probably have to be made as time passes.