Financial Planning Steps: Journey begins with a plan and ends at your financial goals

Have you ever planned a road trip with your family? If yes, then just try to remember what all you did before starting your journey. It must have started with finalisation of destination, the basic things which could be essential while you were on your way, your car with full tank of petrol etc. In other words if I say you must have planned everything from “starting to end”. Now similarly, correlate the above example with your financial life and let the destination of your journey be your dreams in life like. To accomplish your financial milestones we all need a clearly defined path. This article will introduce you to the concept of Financial Planning and the steps in Financial Planning.

We need a plan to achieve every small thing that you have always wished for, to maintain a smile on the face of your family by giving them the basic necessities and amenities, by seeing your children achieving their dreams, your own house, spending quality time with family etc. Once the destination is finalised just fuel up your car which will take you to this destination.

This “car “is “Financial Planning”, the” fuel “is your “finances” and the “driver” of your car is your “financial planner”. Our crucial financial goal is the stimuli that encourage us to take some step towards achieving it. Financial Planning is much more professional and trustworthy tool or mechanism which is done by the Certified Financial Planners who are authorised by Financial Planning and Standards Board of India. Your financial journey can be made very easy and your crucial goals can be achieved successfully by the help of these professional. This article will take you in the depth of the financial planning and the different steps that are considered by the financial planner while making a financial plan for you.

Financial Planning: “Planning for your financial dreams”

Financial planning is a process in which a financial planner analyses, evaluates and prioritizes your crucial financial goals and makes a plan to manage your finances in realising those goals. A financial plan is a 10-15 pages document or booklet which carries the detailed explanation and evaluation of your current assets and liabilities, your cash flows, your goals in order of their priority, funds required for them and at last the suggestions and recommendations to help you in achieving them.

Steps of Financial Planning

The financial planning is six steps process which starts form creating and establishing the relationship between you and the financial planner and ends on monitoring your finances and plan. Let’s proceed.

Establishing and Defining Client Relationship

Financial planning is a relationship between you and your financial planner. The first and foremost step while making the financial plan is to “break the ice” between you and your planner. It is quite an obvious thing that we will be very uncomfortable, if someone straightaway start asking us about our financial worth and other confidential things.

Communication is the key for a healthy and long term relationship and thus, this step is dedicated towards it. In this process, a financial planner introduces himself/herself to you, provides various answers to your questions, and discusses the scope of the relationship, what he/she expects from you and what you should expect from him/her.

Only after you are comfortable with the planner and the scope of engagement is defined in detail, a planer will proceed to the next step of this financial planning process.

Gathering Data

After the ice has been broken between you and your planner, you also start gaining confidence in him/her and you get more comfortable in disclosing your financial information to the planner. Therefor at this stage, your planner asks you to fill the questionnaire that contains questions related to your income, age, family members, their age, your future goals, risk appetite, your expenses, your assets and liabilities etc.

This is a crucial phase of the whole planning process, obviously after first, as in this stage it is expected that you disclose everything to your financial planner just as you must have done if you have visited to your doctor. Whatever information collected at this stage will help the planner in making your plan and if detailed information is being provided then, the most effective and efficient plan will come out of it.

Analysing and Evaluating Current Situation and Needs

Now at this stage on the basis of the information collected, your financial planner critically analyse and evaluate your current financial situation by evaluating your net cash flows, net worth and prioritize your goals accordingly.  Your planner will evaluate your net cash flow in a year, your net worth at present. By looking at your goals, your planner can suggest you that which goal should be given priority by stating which are discretionary (can be deferred, e.g. vacations, buying a car) and which are essential (cannot be deferred, e.g. Child Education).

For example, Mr A has a goal that he want to buy a house after 3 years and at the same time in the next 3 years his child will attain the age for his higher education, then the funds needed for the education should be given priority and buying a house could be postponed by a year or two.

Developing and Presenting Recommendation

At this stage, based on the information and analysis your planner will provide you a blue print of your plan which is open to your comments and discussions.

In this rough plan, your planner will suggest you the various investment strategies according to your risk appetite collected in second stage, cover which you need in case of any eventuality occurs, suggestions and recommendation as to how you can curb your monthly household expenses and other unnecessary expenses so as to increase your net cash flows etc.

For example, if a planner analyse from your information that you have let’s say 3 savings accounts in different banks and the total figure is above Rs 100000, so he can suggest you to continue with one and recommend you to after separating the amount for contingencies, you should invest them in liquid funds which will give you more returns than savings and at the same time provide you liquidity.

Implementing the Recommendations

After the rough draft of your financial plan is discussed and by giving due care to the concerns and suggestions of yours, your planner will implement the strategies which are being discussed and finalised, in the plan.  To implement the recommendation whatever coordination which are needed to be done with the other parties involved i.e. lawyers, stock brokers etc. in your presence will be carried out accordingly.

Monitoring and Reviewing the Financial Plan

Now as it is mentioned earlier that it is a long term relationship between you and your financial planner. So the goals which are being discussed and strategies undertaken to achieve them, will be monitored periodically.

How far the goals have been achieved or if any changes are needed to be done in the investment strategy, then that would be done only and after your approval. Therefore, your financial plan is regularly under the supervision of your financial planner.

If you wish, at any stage to make some recommendations or changes in your investment style, you can always consult your planner.

To conclude this article at last I would say that “Your dreams are waiting to be realised”. You just need to approach towards it through a more authentic route. This route is being provided with financial planning. So as I have started, sit in your financial planning car, let your driver your responsible financial planner take you to your destination that is your dreams! Remember families don’t plan to fail, they only fail to plan.

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