Do you picture yourself owning a new home, starting a business, or retiring comfortably? These are a few of the life goals that may be important to you, and each comes with a price tag attached. That's where financial planning comes in.
It is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a house, new car, advanced career training, saving for your child's higher education and self sufficiency during working or retirement years. To achieve these clear cut goals, people need to carefully plan your finances.
How SMART are your Goals?
It provides direction and meaning to your financial decisions. To set clear-cut goals, make them SMART:
- Specific - Clearly defined and described in details.
- Measurable - track your progress toward a definite endpoint.
- Attainable - realistic and reachable
- Relevant - to your needs and values
- Timely - subject to clear deadline.
Why Financial Planning is Important?
A comprehensive financial plan serves as a framework for organizing the pieces of your financial picture. With a plan in place, you'll be better able to focus on your goals and understand what it will take to reach them. It helps you to understand how each financial decision can affect other areas of your finances. One of the main benefits of having a plan is that it can help you balance competing financial priorities. A plan will clearly show you how your financial goals are related-for example, how saving for your children's college education might impact your ability to save for retirement. Then you can use the information you've gleaned to decide how to prioritize your goals, implement specific strategies, and choose suitable products or services. Best of all, you'll have the peace of mind that comes from knowing that your financial life is on track.
Financial Planning Process
This process consists of six steps that help you take a 'big picture' look at where you are currently. Using these six steps, you can work out where you are now, what you may need in the future and what you must do to reach your goals.
1) Establish and define the client - planner relationship
2) Gather client data, including goals
3) Analyze and evaluate the client's Current financial status
4) Develop the recommendations
5) Communicating and Implement the financial planning Recommendation
6) Monitor your planning recommendation.
Role of Financial Advisors
A basic inference that can be drawn from the results of consumer surveys is that people need help in managing their personal finances to achieve their financial goals. Moreover, many people seem to realize that they would benefit from professional help, and with better education, most others would reach the same conclusion. A major part of the challenge facing advisors who are doing financial planning is to help clients overcome obstacles by educating them and motivating them to gain control of their own finances.