What is Financial Planning?
What does financial planning mean to you?
Nine out of ten people I speak to would reply ‘insurance’.
Financial planning is not about buying insurance or investments or stocks. If you have dreams and goals, financial planning is essential to help you get there.
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.
Simply put, financial planning is about taking responsibility for your own financial well being. It also includes checking your financial pulse rate at regular intervals to ensure that your are in a continually healthy state. Having said that, your financial well being is also dependent on how well your family and loved ones have planned for themselves.
The essential components of a financial plan are represented in the diagram below.
- Wealth Protection
- Wealth Accumulation
- Wealth Distribution
A solid financial plan has protection at its core – it is the foundation of financial planning. Protection or insurance is the greatest form of leverage that one can ever have – for a small premium, you can potentially receive 6-figure benefits.
Without this foundation, your financial goals and dreams could be compromised. Think about it:
- What happens if a huge amount of money is needed to tie your family over when you, the breadwinner, passes on?
- What happens if a major illness strikes and you need money for treatments to recover?
- What happens if you are disabled and you are not able to work for an indefinite period?
- What happens if your spouse who is a full time home maker suddenly falls sick and is unable to look after the little ones?
There are many ‘what if’s’ but the answer is the same for all – you will liquidate your investments and perhaps empty out your savings. When you do this, your investment and life goals will be greatly affected. If the investment is meant for retirement, then you will need to make alternate plans.
Taking a step further, financial planning ought to be conducted from a holistic perspective rather than in a piecemeal, haphazard fashion. The financial strategies tailored for each individual should be well integrated and coordinated, like a jigsaw puzzle.
Comprehensive Financial Planning
A comprehensive financial plan involves the detailed review and analysis of all facets of your current financial situation. It includes:
- Defining your goals and objectives (short, medium, long term)
- Cash Flow & Balance Sheet Analysis
- Risk Management (insurance)
- Education Planning
- Investment Management
- Retirement Planning
- Tax Planning
- Estate Planning
Comprehensive financial planning is best done through a professional financial advisor who can provide you with unbiased advice and a consolidated, accurate picture of your finances. It provides direction, instills discipline and creates a positive future you can look forward to. It is a systematic process and because we take a magnifying glass approach to analysing your financial situation, we are able to recommend preventive measures before problems arise.
A change or more in any of these areas may affect you in achieving your financial goals. It is only through comprehensive analysis that your true financial condition can be determined and the suitable solution can be recommended. A financial adviser skipping this process will most likely be giving unsuitable recommendations.
As a Certified Financial Planner, I derive great satisfaction knowing that clients who take responsibility for themselves, their family and loved ones have secured that peace of mind, come rain or shine.
Therefore, no matter how busy you may be, do not overlook this important step of financial planning.