Taking Charge of Financial Planning Process

Finding good investments, minimizing taxes, beating inflation, and managing money are at the top of many people’s lists. Still, even if you recognize how important financial planning is, you may be waylaid by financial paralysis, unsure of where to begin, or even fearful of making mistakes. Pulling together an entire financial plan can be daunting. Maybe you’ve created a plan that you’re having difficulty following or fear isn’t comprehensive enough. Or you may be confused about what steps to take first.

Here are sequence of steps for taking charge of the financial planning process.
These are the steps:

• Step 1: Determine where you are financially.
• Step 2: Set goals.
• Step 3: Develop a plan.
• Step 4: Keep simple records.
• Step 5: Make an informal budget.
• Step 6: Deal with shortfalls, credit, and debt.
• Step 7: Review your progress.

I will try to elaborate in details in every steps. Hopefully this can give u some ideas about financial planning works. :)

Financial Goal Setting

The personal financial goal setting is learning to control your day-to-day financial affairs to enable you to do the things that bring you satisfaction and enjoyment. This is achieved by financial planning and following a budget.

Without smart financial goals and specific plans for meeting them, you will just be drifting along and leaving your future to chance. You've probably heard the quote: "Most people don't plan to fail; they just fail to plan."

The end result is the same and it is a failure to reach financial independence.

FIVE SIMPLE STEPS FOR SETTING FINANCIAL GOALS

Step 1: Identify and write down your financial goals, whether they are saving to send your kids to college or university, buying a new car, paying off credit card debt, saving for a down payment on a house, taking a vacation or planning for retirement.

Sometimes when people write down their goals, they discover that some of the goals are too broad in concept and nearly impossible to reach, while others may seem smaller in scope and easier to achieve.

Step 2: Break each financial goal down into several short-term (less than 1 year), medium-term (1 to 3 years) and long-term (5 years or more) goals. This will make the process easier.

It is okay to dream about riches, but be realistic about what you can actually do. Try breaking down your goals into three separate time frames.

By placing a time frame on your goals you are motivating yourself to get started and allowing yourself the chance to succeed. Remember that you can adjust the time frame whenever you need to.

Step 3: If you have a lot of goals, focus on priority goals which are within your budget. Keep other goals in the list, move to the next goal only when the higher priority goal is achieved.

Step 4: Educate yourself and do your research. Read Money magazine and books about investing and wealth creation. Learn about the different types of investment options that suit your goal period. Yes, there is the potential for loss, but if you do your research and do a proper investment, you can ensure your financial future. Remember not to put all your eggs in one basket.

Diversify your investment portfolio. With a little effort you can learn enough to make educated decisions that will increase your net worth many times over. Then identify small, measurable steps that you can take to achieve these goals, and put this action plan to work.

Step 5: Evaluate your progress regularly. Review your progress monthly, quarterly, or at another interval you are comfortable with, but at least semi-annually, to determine if your program is working.

If you're not making a satisfactory amount of progress on a particular goal, re-evaluate your approach and make the necessary changes.

There are no hard and fast rules for implementing a financial plan. The important thing is to do something as opposed to doing nothing, and to start NOW!

Reference:
Setting goals 101

What is Financial Planning Part 2

Again, i would like to emphasize this - Personal financial planning is a process of managing money to achieve personal economic satisfaction. It is often confused with Investment planning, however financial planning is not just about investment but covers much larger gamut of managing your money.

The most important tool of personal financial planning is the financial plan. In general usage, a personal financial plan can be a budget, a plan for spending and saving future income. This plan allocates future income to various types of expenses, such as rent or utilities, and also reserves some income for short-term and long-term savings. A financial plan can also be an investment plan, which allocates savings to various assets or projects expected to produce future income, such as a new source of income, business or product line, shares in an existing business, or real estate.

Personal financial planning process involves following steps :



Step 1: Determine your current financial situation.
your personal financial situation can be assessed by compiling simplified versions of financial balance sheets and income statements. A personal balance sheet lists the values of personal assets (e.g., car, house, clothes, stocks, bank account), along with personal liabilities (e.g., credit card debt, bank loan, mortgage). A personal income statement lists personal income and expenses.

Step 2: Develop your financial goals.
Two examples are “retire at age 55 with a personal net worth of Rm 1,000,000″ and “buy a house in 3 years paying a monthly housing loan installment (mortgage servicing cost) that is no more than 35% of my gross income”. It is not uncommon to have several goals, some short term and some long term. Setting financial goals helps direct financial planning.

Step 3: Identify alternative courses of action.
Once your short term and long term goals are set, evaluate the gap between your current as well as desired situations. The financial plan details how to accomplish your goals.

Step 4: Evaluate your alternatives.
It could include, for example, reducing unnecessary expenses, increasing one’s employment income, or investing in the stock market, mutual funds or regular savings plans.

Step 5: Create and implement your financial action plan.
Execution of your personal financial plan often requires discipline and perseverance. Many people obtain assistance from professionals such as accountants, financial planners, investment advisers, and lawyers.

Step 6: Review and revise your plan.
As time passes, your personal financial plan must be monitored for possible adjustments or reassessments. This is a cyclical processes.

Advantages of personal financial planning:
1) Increased effectiveness in obtaining, using, and protecting your financial resources.
2) Increased control of your financial affairs.
3) Improved personal relationships.
4) A sense of freedom from financial worries obtained by looking to the future.

Source:
Personal Money

What is Financial Planning part 1

Financial planning is the long-term process of wisely managing your finances so you can achieve your goals and dreams, while at the same time negotiating the financial barriers that inevitably arise in every stage of life. Remember, financial planning is a process, not a product.

Why a CFP® Professional?

CFP® professionals are dedicated to using the financial planning process to serve the financial needs of individuals, families and businesses. Most CFP professionals have completed a course of study in financial planning approved by CFP Board.

To earn the prestigious CFP® certification and remain certified as a CFP professional, individuals must meet four main requirements.

Certification Requirements

Examination

CERTIFIED FINANCIAL PLANNER® Professionals must successfully complete CFP Board's comprehensive certification examination, which tests an individual's knowledge on various key aspects of financial planning.

Experience

CERTIFIED FINANCIAL PLANNER Professionals must acquire three years of financial planning-related experience before receiving the right to use the CFP certification marks.

Ethics

CERTIFIED FINANCIAL PLANNER Professionals must voluntarily ascribe to CFP Board's Code of Ethics and additional requirements as mandated. CFP practitioners who violate the code can be disciplined, including permanent loss of the right to use the CFP certification marks