Financial Planning is the process of meeting your life goals through making sensible money decisions. Life goals can include building your dream house, saving for your daughter’s marriage, saving for your son’s higher studies, or planning for your retirement. The process involves gathering relevant financial data, setting life goals, analyzing your current financial status and coming up with a plan for how you can meet your financial goals.
You may get confused about how to differentiate ordinary financial advice from qualified Financial Plans. Certified Financial Planners follow certain standards, which may help you in understanding what to expect from the Financial Planning. This is a six-step process as prescribed by the FPSB India (Financial Planning Standard Board, India) authorities around the world.
The basic six steps of Financial Planning are,
- Establishing the client-Planner relationship; The Financial Planner should clearly explain or document the services to be provided to you and define both his and your responsibilities.
- Gathering client’s data; The Financial Planner should ask for information about your financial situation. You and the Planner should mutually define your personal and financial goals, understand your time frame for results and discuss, if relevant, how you feel about risk. The Financial Planner should gather all the necessary documents before giving you the advice you need.
- Analyzing and evaluating the client’s financial status; This could include analyzing your assets, liabilities and cash flow, current insurance coverage, investments or tax strategies.
- Developing and presenting Financial Plan; The Financial Planner should offer Financial Planning recommendations that address your goals, based on the information provided by you. The Planner should go over the recommendations with you to help you understand them so that you make informed decisions. The Planner should also listen to your concerns and revise the recommendations as appropriate.
- Implementing the recommendations in the Financial Plan; You and the Planner should agree on how the recommendations will be carried out. The Planner may carry out the recommendations or serve as your ‘coach’, coordinating the whole process with you and other professionals such as solicitors or stockbrokers.
- Monitoring the recommendations in the Financial Plan; You and the Planner should agree on who will monitor your progress towards your goals. If the Planner is in charge of the process, she should report to you personally to review your situation and adjust the recommendations, if needed, as your life changes.