Financial Planning-Basics Steps To Getting Started

Financial planning comprises of two main elements -

The financial strategy (or plan), and the investment strategy. The financial strategy looks at wealth creation, debt management and retirement planning, while the investment strategy examines asset allocation and investment selection.

Regardless of the scope of the Financial Plan the process includes six basic steps. These are illustrated below.

1. Gather all the facts

You need to put together an accurate picture of your financial situation including the assessment of your investment and risk profile, which can range from conservative to aggressive. Work out your monthly cash flow.

2. Set financial goals

Write down your short, medium and long term income requirements, expenditure estimates, as well as identify any other personal and business needs.

In the grand scheme of things money is not that important. What is important about money is that it enables you to enjoy the things which are important to you.

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Turbocharged Financial Planning

Financial planning is an ongoing process individuals and businesses should implement by organizing all aspects of their finances. This will assist in identifying financial goals, providing a comprehensive written Financial Plan, and implementing the plan in accordance with the objectives that are most important to you.

Comprehensive financial planning should involve these areas and these specific questions.

ESTATE PLANNING

*How can you accumulate a sizable estate to pass on as a family legacy?

*How will your hard-earned assets be distributed after your death?

*How can you minimize federal estate taxes and state inheritance taxes?

*How can you best provide for your surviving spouse and children?

*Whom do you want to carry out your wishes?

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Investing Without Financial Plan and Goals

In times of plenty, we seek safe haven for surplus cash that will generate passive income for the future. In times of need, some of us take desperate steps to increase our money supply to meet the demands of the day. Both actions necessitate investment decisions, decisions that many of us are oftentimes not qualified nor experienced to make wisely without help. Thus, begs the need to know the answers to the four "wives" (why, when, where, who) and one "husband" (how) questions with respect to investing and financial planning. This article will discuss the two most important pre-requisites to making wise investments.

As a licenced financial planner and a business and financial advisor to small and medium companies, I am often asked to give investment tips or advice. Whether I am a fantastic investment guru or tipster or not is immaterial as I would always avoid answering such questions without knowing and understanding the financial background, status and financial goals of the questioner. This article is not intended to be a primer in investing or financial planning as one can select a book on the subject in any good high street or online bookstore. Rather, I would like to share what I consider to be the top two amongst the many pre-requisites an investor should consider before making an investment decision.

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The 3 Concerns of a Financial Plan

Step by step planning towards achieving financial goals forms the very essence of creating an efficient and effective financial plan. Defining a brief outline for a financial plan requires addressing certain concerns like Achieving flexibility, liquidity and tax minimization Achieving Flexibility. Developing or creating a financial plan requires deep understanding of your personal and financial goals. Financial goals are situation specific and may vary individual to individual. The goals pertaining to an individual may change or vary relative to prevailing situations in your life. For example, events such as births, deaths, illnesses, and marriage can affect your goals profoundly. Other factors like change in employment, inflation, investments and results, and miscellaneous factors will also affect your financial circumstances. Therefore creating or making plans which are unresponsive to change should be avoided. Flexibility thus plays an important role towards creating a plan suitable for changes in your life. This can also be considered as customizing a plan for an individual with respect to several variable factors, these factors in turn define the development of a financial plan.

Liquidity. Adequate liquidity is another area of concern which requires to be addressed before the process of financial plan development starts. Liquidity is, particularly important for handling situations classified as financial emergencies in particular if we consider the advice of financial advisors who recommend that setting aside funds equivalent for a period of 3 to 6 months of an individual's expense. Appropriate locations for these funds are savings, and money market accounts or a standby line of credit to accomplish the same level of liquidity. The important part here is to ensure quick and easy access to money in order to avert or address critical situations. Liquidity: the characteristic of an asset that can be converted readily to cash without loss of principal.

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Benefits Of Financial Planning

Most of us are aware of the term 'Financial Planning' but only a few of us are able to understand the real meaning of the term. Financial planning actually involves a formal process which includes constructing the perfect way for financial goals and objectives which takes into account the assets of the business or the individual, liabilities and the credit standing as well. Financial planning is essential for both businesses and individuals and it is concerned with the aspect of taking control of the financial accounts as well as taking the advice of experts or of the counsel regarding matters of real estate so that the right decision regarding insurance policies and evaluation of stock options is taken.

Significance

As planning is performed both for the individual and for the business, this aspect involves taking into consideration of the tasks and activities at both these levels. Firstly, there is the aspect of checking the budget for household expenses; starting savings account for retirement funds and all these aspects needs to be taken care of at the individual or the business level so that sufficient cash flow is ensured and you can make decisions regarding your investment plans. You require the expertise of a reliable financial planner so that you can make relevant decisions regarding the allocation and the management of money. Financial planning plays a pivotal role in the assessment of financial standing which allows for the allocation of financial assets in the best manner.

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