Good money management has always been a wise practice.
But major changes in the way governments support their citizens in times of need has made has made financial planning even more essential. This is true whether you are a twenty year old student, forty year old executive or 60 year old retiree-to-be.
Personal financial planning is a lifelong activity. That does not mean that one’s goals and plans remain constant through life. But rather keep taking into account new concerns, desires, opportunities as well as threats to financial well being. The importance of different goals will change throughout life. For example, a plan that ensures sufficient income for young dependents is crucial for a 30 year old parent but not as much to a 60 year old grandparent.
The important outcome in the planning process is the creation of a strategy that guides a person’s significant monetary decisions. For example, investment plans would involve asset allocation based on percentages that the recommended portfolio allocates to bonds to versus stocks. Another example is whether a client chooses cash value life insurance or mostly term life plans and places the savings in premiums elsewhere.
The fact is most people do not follow rigid plans all the time throughout life. That is why it is important for planners to help their clients develop, implement, monitor and periodically review well thought through plans.
A further study of the subject reveals terms such as comprehensive as well as special needs planning. Each of these concepts has relevance in different situations and for different objectives.
A comprehensive financial plan lives up to its name – it covers risk management, wealth accumulation, taxation, retirement funding as well as estate planning.
Special needs planning in contrast looks at just one objective, such as funding a university education, saving to buy a home, caring for an elderly parent. It is important for the planner to understand that even though he or she is helping the client achieve a specific outcome, the planner will always consider the bigger picture to ensure long term viability.
In conclusion, financial planning is not just about an individual’s own concerns but rather it is intertwined with the long term well being of his or her entire family including several generations as well as any business that he or she owns or runs.