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Financial planning is a comprehensive process that focuses on all aspects of your finances. Though each person has different needs, different goals and different means, an effective financial planning process will always result in a carefully designed plan that will guide you in intentionally maintaining and building wealth.
The following is a good roadmap of the financial planning process:
Phase 1: Establishing and defining the relationship between yourself and your financial advisor
The first phase consists of the initial discussions with your financial planner and helps establish the working relationship. If you do not have a well defined relationship with your financial advisor it will always make you feel uncertain and vulnerable. That is why the first phase is meant to establish a trust relationship while working on the initial exploration of your financial situation and plans.
Phase 2: Gather data and determine goals and objectives
During phase 2 the groundwork is layed for an effective financial plan. It is about gathering information on your current financial situation, commitments, short to long-term financial goals and your circumstances. This is done by co-creating a provisional picture of your current financial situation and your goals and objectives.
Phase 3: Clarifying your present financial status; identifying any problem areas and opportunities
The third phase involves an analysis of your assets and liabilities, cash flow, current risk cover, investments and tax strategies. It allows you to investigate solutions to problems and identify strategies to capitalise on opportunities.
Phase 4: Implementing the financial plan
Once you understand and are completely satisfied with the recommendations, you will need to authorise your financial planner to proceed with the implementation of the financial plan. During this phase your financial planner assists you in implementing the recommendations discussed if you want. This may also involve coordinating contacts with other professionals such as investment funds sales representatives, accountants, insurance agents and lawyers.
Phase 5: Monitoring the financial plan
The first five steps of the six-step financial planning process are easy, since they are essentially a mathematical exercise. The final step requires the skill and experience to drive the performance of your resources. This phase requires that your financial planner offers ongoing care. This is not an attempt to sell you a new product – it is a service that is separately costed in a fee-based environment.