What is Financial Planning?

tick
A comprehensive exercise to create a financial roadmap for the future
tick
It analyzes the current financial situation of the client with respect to the income, expense, current assets and outstanding liabilities
tick
Identifying and listing down important financial goals and steps to achieve them
tick
Identifying protection needs in the form of emergency fund, life insurance, health insurance etc

What are the steps to be followed for Financial Planning?

tick
As per the Financial Planning Standards Board of India, following are the 6 steps of the Financial Planning Process

1. Establishing and defining the client-Planner relationship:

The advisor and the client agree on what services will be offered

2. Collect data about the client:

This step involves collecting and putting together the information about the current investments, income, expenses, insurance etc. of the client and the family members. The advisor also helps the client in identifying and listing down the future goals

3. Analyzing the client’s current financial situation :

In order to prepare a plan, it is very important to understand the current financial situation of the client based on the data collected.

4. Presenting a Financial roadmap for the client :

A financial plan is presented which lists down the action steps and course corrections if any to enable the client to achieve his /her objectives. The advisor also presents various scenarios and product recommendations to the client

5. Implement the plan:

The advisor assists in execution of the plan by helping the client start investments in the recommended products and services. The advisor also helps in purchasing the required insurance products

6. Review and Monitor the plan:

It is very essential to monitor the plan on a regular basis and also when the client crosses important life stages.

What are the benefits of creating a Financial Plan?

tick
The following are the benefits of a Financial Plan

1.Investment Aggregation:

Over the course of time, an investor invests in various products like shares, mutual funds, bank deposits, gold, etc. A Financial plan helps you to collate all this information in one place so that current financial situation can be properly analyzed.

2. Better Budgeting:

Having a monthly budget helps you evaluate your essential and discretionary spends. It helps you to optimize your expenses and thus increases your investible surplus

3. Deploy your savings more efficiently :

The traditional equation of Savings was Income – Expenses = Savings (Which were often not invested in time). Financial Planning helps you to turn over this equation into Income – Investments = Expenses. Since you have budgeted for your expenses, you can make an investment as soon as you receive your income

4. Identify your goals :

A financial advisor not only helps you identify the important financial goals in your life; he also guides you regarding the best possible way to achieve them in a timely manner

5. Monitor your investments:

The advisor helps you to review you portfolio on a regular basis. This ensures that if there are any junk investments, they can be reallocated to better performing assets

6. Invest as per your risk profile:

Investing as per your risk profile helps you to stay invested for a longer period of time without worrying about market movements and more importantly it gives you peace of mind. E.g. if you are a moderate investor, it is better to have a mix of investments that give assured returns and market linked returns

7. Have an emergency fund in place:

One of the first steps of implementing a Financial Plan is to create an emergency fund which helps you to take are of any contingency that might come. An emergency fund comes in handy in difficult situations like the current one where many people had salary cuts and some of the people also lost jobs

8. Take care of Protection Needs:

A Financial Plan is not just about investments. A Financial Advisor will also help you to buy proper insurance products like term life insurance, medi-claim for all the members of the house and also other insurance like personal accident, critical ill ness etc.

9. Helps you focus on your job and career:

Since you have planned for your future, you can devote undivided attention to your career and job. This ensures you excel both in your professional life and also your financial life
financial-plan
blue-arrow