Financial planning is the process of meeting your life goals through the proper management of your financial resources. These may include purchasing a home, saving for college, or planning for retirement. It’s important to know that financial planning is a process, not a transaction. The goal is to adopt a big-picture, integrative approach to your personal finances.
Financial planning is about controlling spending, managing credit, reducing taxes, increasing savings, protecting family and assets, and building wealth for the future. This process entails gathering financial information, establishing life goals, evaluating your current financial status, and developing a strategy to help you achieve your life goals.
To develop a solid financial plan, it's important to cover all your bases, including examining your current situation, setting financial goals, and measuring your progress. From start to finish, a Certified Financial Planner™ professional can take you through the financial planning process steps to help you achieve your financial goals.
1. Establish and define the professional relationship
Healthy planning relationships begin with a conceptual understanding of the importance of financial planning. Financial planning is a clearly defined process that coordinates all areas of your financial life to meet your and your family’s financial goals. The planner will explain his or her financial planning services and disclose the method of compensation. The planner will define the respective roles and responsibilities for both parties. The planner applies skills and knowledge to help you achieve financial independence and reach your financial goals. In exchange, you agree to compensate the planner a predetermined fee for the financial planning engagement.
2. Gather client data and discuss financial goals
The planner will need qualitative and quantitative information to understand your financial situation. To assess your current financial position, your planner will construct a net worth statement and cash flow statement. Together, you will identify your personal and financial goals, as well as key areas of concern. You will also discuss your time horizon and capacity for risk. Effective planning is predicated upon the prioritization of realistic, challenging, and obtainable goals.
3. Analyze and evaluate your financial status
Assess your current situation in terms of assets, investments, liabilities, risk, insurance coverage, tax status, employee benefits, and cash flow. Review all subjective data to provide the facts greater context and direction. The planner will evaluate whether or not you can meet your goals, needs, and priorities given the current course of action.
4. Develop and present recommendations
Consider the various alternatives available to meet objectives, given your financial position, personal situation, and investment constraints. The financial planning process is client dependent: options may be numerous and complex or few and simplistic. Effective presentation of recommendations helps you adopt an integrated approach to your finances and understand how change in one instance can affect other areas of your financial life. At this stage, the planner listens to concerns and revises recommendations accordingly.
5. Implement the written financial plan
This step necessitates mutual clarity and understanding. Together, you and your planner will determine how to implement the recommendations. The written financial plan provides a documented working framework. Implementation may include coordination with other professionals such as attorneys or accountants.
6. Monitor recommendations
Sound financial advice provides direction and guidance. Ongoing financial advice and goal tracking require client engagement and interaction. Therefore, the final step of the financial planning process is to review your progress and update your financial plan. It is important to adjust your plan on a periodic basis.
Creating a financial plan helps you see the big picture and set long and short-term life goals, a crucial step in mapping out your financial future. When you have a strategy and a financial plan, it's easier to make financial decisions and stay on track to meet your goals. Working with a CFP® professional can secure your financial well-being and give you financial confidence.
Financial planning helps you understand the impact that each financial decision has on other areas of your financial life. For example, increasing contributions to your employer-sponsored retirement plan affects your cash flow, taxes, investment portfolio, and retirement plan. This integrated approach to managing your wealth provides clarity and confidence to your financial decisions. You can also adapt readily to life transitions and gain a sense of empowerment knowing that you are progressing towards your financial goals.
Wealth management is a comprehensive investment practice that encompasses financial planning, investment portfolio management, risk management, tax planning strategies, and estate-planning services to high-net worth individuals. Wealth management is a holistic approach to understanding and providing solutions to the many financial concerns of a client’s financial life. Just as a primary care physician serves as a gatekeeper to coordinate the care given by varied organizations and collaborates with referral specialists, a wealth manager acts a relationship manager to better serve the client.
As the financial lives of wealthy clients have become more complex, many of our clients value a streamlined integrative approach to managing their financial affairs.