Financial planning

Personal financial planning is an integral part of the life of any person. Without financial planning in today’s economic life, it is impossible to properly manage funds, create capital, solve financial problems, etc. Personal financial planning is designed to provide a person with a road map, which helps to understand the financial situation and always be on top.

The main types of financial plans: integrated, investment and specialized.

What is financial planning?

In the most primordial sense, personal financial planning is, in simple terms, cash flow planning. In other words, it is planning to have a certain amount of money available at a time when it is necessary and, in an amount, sufficient to achieve specific financial tasks.

The steps taken to implement the financial plan are consistent with these goals. Take, for example, a married couple retired. If their primary or sole source of income is the investment they have created, then these investments need to be structured more to generate current income and, less so, for long-term capital increase.

On the other hand, if we assume that this couple lives in financial comfort and has enough assets to ensure their own financial needs for life, then they can place a more tangible part of their investments for long-term growth, with the aim of increasing the inheritance for their children or, for example, charity.

  1. Creating order instead of chaos.
  2. Intentional and continuous process with the aim of accumulating and preserving capital and creating an adequate level of income to achieve the client’s financial and personal goals.
  3. Development and implementation of coordinated plans for the client to achieve specific financial goals.
  4. Tax planning, pension planning, inheritance planning, investment and classification planning and planning of risk control.

You can choose any of the above definitions, or all together. There seems to be no single universally recognized definition of Financial Planning. And this is understandable, since the role of a financial planner is as diverse as the client’s needs and capabilities, and the desire to pay for advice. There are no two absolutely identical people and absolutely identical tasks.

For many people, creating a simple and applicable system that helps them control cash flows and pay bills on time is a successful financial planning. For others, in-depth financial planning will be required, involving, on a regular basis, a professional specialist, assistants and secretaries, and enhanced computer and administrative support.

However, most people fall into the category located between these two extreme points.

Financial problems that face the vast majority of people in their lives can be divided into several categories, expressed in the acronym FINANCE, where each letter represents one of the categories.

FINANCIAL INSTABILITY
Not enough steps have been taken to stabilize and maximize the financial security of their business and other available assets
ASSETS ARE IRRATIONAL
The client leaves the wrong assets, the wrong people, at the wrong time and in the wrong way
INFLATION
Not enough is done to protect your investment portfolio from the destructive power of inflation
TAXES AND FEES ARE EXCESSIVE
This increases the cost of investing and slows the progress towards the task
INSUFFICIENT LIQUIDITY
Impossibility to quickly convert invested capital into cash without incurring unnecessary losses: forced sale, etc.
SPECIFIC NEEDS
The client has desires that go beyond the usual quantifiable goals. Psychological confidence and comfort should be part of the financial planning process, for example, children with disabilities.

Regardless of the definition of the concept of financial planning, all people are faced with the need to determine how much the resources at their disposal correspond to the achievement of their financial goals and objectives. The usual financial goals and objectives can be divided into several generalized categories:

Current way of life

Education of children

Retirement planning

Questions relating to parents

Inheritance Planning

Special Needs

One of the critical moments in understanding what personal financial planning is – and what it is not – is the realization that most of our potential customers do not have sufficient resources to achieve all the desired goals and solve all the tasks.

Thus, in these situations, sometimes you have to compromise. Or, to put it more precisely, there is a need to identify priorities. Financial resources should focus on achieving those goals that, from the point of view of the client, are the most important.

In themselves, Financial Plans, as the final product of the work of financial professionals, can differ in the depth of analysis, design, approaches to the solution of tasks and even recommendations for their achievement. However, regardless of this, any Financial Plan executed by a competent specialist should include at least the following three components.

  1. Analysis: WHERE YOU ARE NOW.
  2. Goals: WHERE YOU WANT TO BE.
  3. Strategy: HOW TO GET THERE WHERE YOU WANT TO BE.

And although the Financed Financial Plan may be more extensive or on the contrary very short, comprehensive (general) or aimed at solving only one or two tasks (target) – regardless of this, the most important thing is that it be implemented.

Naturally, for this, the Plan must be realistic and must be coordinated with the client and accepted by them as the basis of the guide to action. Otherwise, all good intentions and efforts of the financial adviser will go away.

In addition, it is impossible to accurately plan all possible changes that occur in the life of any person: changes in income, marital status, uncontrolled external events (for example, loss of ability to work), and so on. Therefore, any Financial Plan needs periodic inspections and additions.