What Is Financial Planning?
The foundation for investing starts with proper financial planning; setting goals, establishing a budget, gathering financial records and knowing your net worth. The financial planning process starts with gathering information.
Confused About How Financial Planning Works?
Financial planning confuses a lot of people. Faced with an array of decisions, most people don’t know what to do. Which investments will you select from your employer’s retirement plan? Which type of mortgage is best? What’s the best way to save for college?
Should you go with dealer financing when you buy a car? What’s important when choosing a long-term care insurance policy? What kind of trust do you need?
What does financial planning mean to you? Financial planning means different things to different people but the benefit of having a trusted advisor to go to when you are uncertain about your financial issues is valuable.
For WaterStates, financial planning is the process of meeting life's goals by strategically managing your financial future. Your financial affairs are complex and require constant evaluation. You need to understand how your financial decisions impact other issues you must manage.
A professional financial plan allows you to view each decision as part of the whole so you can consider the short and long term effects on your goals. You will also be able to adapt more easily to life changes and feel confident that your goals remain on track.
Alongside the data gathering exercise, the purpose of each goal is determined to ensure that the goal is meaningful in the context of the individual's situation. Through a process of careful analysis, these goals are subjected to a reality check by considering the individual's current and future resources available to achieve them. In the process, the constraints and obstacles to these goals are noted.
Personal financial planning is broadly defined as a process of determining an individual's financial goals, purposes in life and life's priorities, and after considering his resources, risk profile and current lifestyle, to detail a balanced and realistic plan to meet those goals.
The individual's goals are used as guideposts to map a course of action on 'what needs to be done' to reach those goals.
TIPS FROM THE PRO:
Require a sound, well thoughtout strategy (PROCESS)
Know that once you begin things will change (FLEXIBLE)
You cannot do it alone! (NEED COACH/CADDY)
The information will be used later to determine if there are sufficient resources available to get to these goals, and what other things need to be considered in the process. If the resources are insufficient or absent to meet any of the goals, the particular goal will be adjusted to a more realistic level or will be replaced with a new goal.
Planning often requires consideration of self-constraints in postponing some enjoyment today for the sake of the future. To be effective, the plan should consider the individual's current lifestyle so that the 'pain' in postponing current pleasures is bearable over the term of the plan. In times where current sacrifices are involved, the plan should help ensure that the pursuit of the goal will continue.
A plan should consider the importance of each goal and should prioritize each goal. Many financial plans fail because these practical points were not sufficiently considered.
3 PRIMARY RULES FOR THE BACK 9
Rule 1: Don't Run Out of Money
Rule 2: Create inflation adjusted lifetime paycheck
Rule 3: Don't put all your eggs in one basket
For the financial planner to do his or her job, that person must know your present financial structure, your goals and risk tolerance.
The more knowledge that can be obtained the better the financial planner can do his or her job.
We suggest you complete a financial questionnaire then fax or mail it to the office below.
Your information will be kept confidential and never be given or sold to any other company or individual.
The next step involves helping the client answer the following:
What is the approximate time frame I am willing to keep my funds invested to achieve my investment objectives?
What current income do I need to obtain from my investments?
What future cash needs am I likely to have?
Are there any tax or legal issues that I need to consider for the portfolio's holdings?
Am I a conservative investor or an aggressive one?
How much volatility am I willing to accept in my portfolio to try to earn a higher return?
Few of us have any training in investments, economics, insurance, taxes or law. You’ve never heard of Harry Markowitz, you don’t know about the efficient frontier, you have trouble spelling amortization (let alone explaining it), and you can’t explain the difference between a testamentary trust and a springing power of attorney.
Yet you’re faced with decisions pertaining to these things. You know you have to make financial decisions, and you are correct in thinking that the wrong decision could cost you and your family huge amounts of money. No wonder you feel as though you’re in over your head. How can you conquer the field of personal finance and obtain financial security for yourself and your family?
I have good news for you. Simply approach the topic of financial planning exactly as you do the field of medicine. After all, you might not be accustomed to working with a financial planner, but you’ve been to the doctor. Approach both the same way.
All you need to do is focus on your symptoms: Where does it hurt? What’s bothering you? What is the cause of your concerns? Just tell your advisor -- and let the advisor respond. A talented advisor will engage in diagnostic efforts: He or she will ask you a bunch of questions and, believe it or not, you really will know the answers. The planner will then run tests to assess the situation, evaluate the findings, and then prescribe a treatment plan for you. Sound familiar?
You should see a financial advisor even if nothing is bothering you. After all, even healthy people should have an annual physical. Just because the patient has no symptoms -- “Doc, I feel great!” -- doesn’t mean nothing’s wrong. Lots of illnesses have no symptoms (high cholesterol and blood pressure, for example) but you can die if you don’t treat them. You know this, and that’s why you go to the doctor every year or two to let him poke around and ask you a bunch of questions.
On the same basis, visit a financial planner and let him or her poke around, too, even if you think everything is fine financially. Show him your investment account statements, employee benefit printouts and insurance policies and let him read your trust documents. (What? You don’t have any of those things? That’s a hint your appointment might be overdue.)
The planner will ask you questions about your income, expenses, assets and debts. He’ll poke into your real estate, mortgage, employee benefits, and then he or she will get really intimate. If you think taking your clothes off in front of a doctor is awkward, wait till you tell your planner about your marriage and family circumstances, your career, your goals and, gulp, your fears. How do you feel about risk? What’s your need for liquidity?
Your answers will enable your financial planner to determine what tests need to be conducted before he or she is able to offer recommendations to you.
If you hesitate delegating such responsibilities to the expert, well, that’s exactly how you work with your physician, isn’t it? And the best part about this process is that you are the expert, too: You are the expert on your symptoms; nobody knows your symptoms as well as you do.
You know about your income; you know how much you spend; you know what’s going on in your family; you know your goals; and you know what’s concerning you. You know where it hurts. Stop right there because that’s all you need to know. You don’t need to know more about money than you do about pharmacology.
And if you’re worried that your financial planner will make bad recommendations, well, that’s what second opinions are for. You see, you know a lot more about the financial planning process than you thought. Call for a financial physical today.
Only after the client has addressed these questions, and has a clear understanding of investment needs and goals can the financial planner begin to determine the appropriate asset mix and identify the right mutual funds, stocks, bonds and money market funds.
Usually a good starting point is to take advantage of any retirement plans that are available to you. Let us help calm the waters of your Financial Future.
