What is Financial Planning Anyway?

"Financial planning" is a term that has been widely used over the last couple of decades to attempt to explain the activities of investment, insurance and tax professionals. While it has been used more and more by these professionals for marketing purposes, the term is largely misunderstood by the public because the activities to which the name is applied vary as much as the entire financial industry.

As a consumer, you need to understand what financial planning is and how important it is to your future.

Define the Terms

"Financial" means having to do with money and the use of it.

"Planning" is the action of laying out a series of actions beforehand to achieve a known objective or goal.

Hence, "Financial Planning" is working out programs and procedures with your money to pay for the most important goals in your life.

The problem is that when you go to a "financial planner" sometimes the only subjects discussed are usually investments and insurance, and real planning doesn't get done. Sure, there are "tips" and "suggestions" to improve your finances, but implementation of efficient programs to assist you into a factually better financial condition are rare.

The 4 Basic Goals of Financial Planning

In my view, there are 4 basic goals of financial planning:

1. To actually increase the income of a business so that more profits can go into the business owner's household (this is business consulting, but it is definitely within the province of financial planning).

2. To manage and reduce as many of the real risks to your wealth as possible (there are many more than you think).

3. To predict and provide for known and "unknown" future expenses so that financial setbacks do not occur.

4. To use the most efficient programs available so that specific financial goals can be achieved with the maximum results and lowest actual waste.

The only way to efficiently and effectively achieve your financial goals is to plan for them. Unfortunately, most people don't plan because it actually requires time and attention. The reality is that if you don't plan, you won't get there. One actually spends more time reacting to situations trying to combat or mitigate emergencies that are created by lack of planning. It's as simple as that.