Plan Your Financial Needs

World of Finance by M.Vijaya Sai

Whenever we start a project, the first thing that we invariably do is planning. And when it comes to finance and business, needless to say that, planning becomes important activity. So what is financial planning all about? Financial Planning can be termed as a process in which financial needs are assessed first, objectives to achieve monetary goals are set and assets and resources are evaluated and ways to increase them are devised. Why is financial planning important? Of course!  The financial planning  activity not only allows the person to learn about planning his finances but also helps him understand the importance of cash flows and investments and track expanses that come handy in the most unexpected situations. How is financial planning done? Yes, this is what this article is all about: Planning your financial needs..Keep reading.

How to make a Financial Plan?

Financial planning is an integral part of financial management. This activity requires a lot of study and research, before  we go ahead in drawing a plan and implementing it. Not to miss an important point on this subject, evaluating the risk variant is an integral part of any planning. So let's understand the key financial planning process steps. Below are the key steps to consider in your financial planning process.

 Needs Analysis

The primary responsibility in the financial planning is to assess the needs. An investor has a number of needs of which he needs to prioritize them into important ones and plan accordingly. The important goals could be, education of children, down payment of a house, health requirements, marriage, life insurance and retirement. Following these needs are the means to increase the wealth in terms of cash and property. Also a person needs to have concrete answers for the following questionnaire:

•What are your investment goals?

•How much money do you have for investments?

•Do you invest in stocks, bonds and mutual funds?

•Are your financial needs short term or are you planning for long term financial needs?

•What benefits are expected from your investments and what is the savings component ?

Collecting the Financial Data

Now that you have identified the financial needs, the second step should be to consolidate your financial planning to a worksheet and understand your cash flow, investments, assets and liabilities. This activity would take approximately 7-10 days. Take the help of a financial planner who would help you out to prepare financial position statement. The documents needed for this process would include:

•Assets, Liabilities, tax deductions and tax return.

•Salary Slips,rent receipts, All income receipts.

•Balance sheets

•Income and expenditure statements

•Employee benefit plan booklets

•Retirement planning documents

•Wills and trusts

•Insurance policies

•Investment statements

•Brokerage house statements

•Bank statements

Besides, the planner will also require some more data like:

•What is he is going to be retired?

•What income is expected post retirement?

•How would you want your property to be distributed?

•What is the state of current economy and where it is heading towards?

•What is inflation rate in near future?

The planner will have to assess risk tolerance levels and assess the risk category he falls in (aggressive, moderate or conservative) towards financial matters and at the end of the information gathering process, he is bound to get a hang of what is his current financial state and what would it be in near future.

Developing the Financial Plan

Here starts the actual work of your financial planner who has to devise effective means of developing a excellent financial planning process. The steps for developing the financial plan start with the following:

•Documenting your plan to fulfill protection of future financial needs like health and retirement. Wealth creation and preservation requirements are included.

•Explaining  you about the pros and cons of every possible factor of risk and return included in the plan (keeping in mind the risk appetite of the investor).

•Understanding the tax laws and the financial needs of the person.

Presenting the Financial Plan

Once the financial plan is well documented, your financial planner will review it and present it to you. In the first round of presentation, you need to study the document thoroughly, with your family members. Take your time, and if you have queries, list them down in a list and pass them on to your planner. The financial planner will give you clear answers for all the doubts raised and then once you have agreed, the planner will make an implementation check list. So the next task in financial planning is implementing the well documented financial plan into action.

Implementation of Financial Plan

This is a most important phase of the financial planning process steps. And also this period takes longer time (approx 4 to 6  months) than the previous stages of the financial planning. During this phase, important details like tax planning,marriage of children, retirement planning, insurance concerns and estate/property planning are discussed thoroughly. To get a clearance on certain issues, financial planners and portfolio managers may be involved for guiding and helping out with certain queries. Quite possible, that at the end of the implementation, your financial plan may have about 15 to 20 recommendations (of which some may be major and strategic with high priority).  Therefore, it depends on you and your planner to see and assess how you want these recommendations to be implemented. But yes, your financial plan is now ready!

Reviewing and monitoring the Financial Plan

Once the plan is put into action, it does not mean that the financial planner is not at all required anymore. He has to be retain the original plan to provide you with periodic updates with portfolio reviews, insurance updates, income updates, expenses updates, investment options, tax planning sessions and changing market conditions. Besides these, one need to keep his/her ears open to the planner's suggestions on risks that can possibly crop up due to fluctuating economical conditions.

Hope this article on Planning your Finanacial needs was informative and useful.  Now, you  might have understood the importance of financial planning and also you must have understood how important it is to have personal financial plan. One could say, if the planning is complete, your job is halfway done. So, prepare your financial plan in full detailed manner and reap the fruits of financial planning. After all, every single rupee invested is every single rupee!

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