What is Financial Planning?

A very commonly used definition of financial planning is Financial planning is the process of meeting ones life goals through the proper management of personal finances.

   It is best to the above definition by breaking it up into three parts.  

Financial planning is a process

 Worldwide professional financial advisors follow a standard six-step process to deliver Financial planning services consisting of :  

• Establishing and defining client relationship.

• Gathering client data, including goals.

• Analyzing and evaluating current situation and needs. 

• Developing and presenting recommendations.

• Implementing the recommendations.

• Monitoring and reviewing the financial plan.

   Meeting ones life goals   Individuals and families have many goals in life to fulfill for which they will have to save, accumulate and grow their money.   The most common life goals are :  

• Childrens future including education and marriage.

• Buying house.

• Comfortable retirement.

• Going on regular or one time vacations.

• Purchasing a car / vehicle.

• Corpus for starting own business.

• Being debt free (home loan, car loan)

• Charity.

   Management of personal finance   Financial planning is all about managing finances of an individual or family.   It should not be mistaken for corporate finance although many of the concepts used in corporate finance are used in financial planning.   While offering solutions to clients, the following aspect of personal finance should be analyzed as whole rather than seeing them in isolation.  

• Income.

• Expenses.

• Assets.

• Liabilities.

• Insurance.

• Taxation.

• Estate.

   What is NOT financial planning ?  

• Financial planning is not about asset allocation and portfolio management.

• Financial planning is not about buying different insurance policies.

• Financial planning is not about making ad-hoc investments.

• Financial planning is not about buying stock and commodities.

• Financial planning is not about all that you think you possibly understand.

   Who needs Financial Planning?  

• It is useful to everyone.

  

• Very few can consider themselves too rich to engage in Financial Planning.

  

• There are many instances of highly paid employees who came to financial grief merely because they did not plan for their post-career years.

  

• Similarly even people earning small amounts of income should undertake this process, as it will help them in prioritizing their goals so that their limited income can be used more efficiently.

  

• Financial planning provides direction and meaning to your financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances.

  

• For example, buying a particular investment product might help you save adequately to finance your child higher education or it may provide enough for a comfortable retirement. You can also adapt more easily to life changes and feel more secure that your goals are on track.