Single Transaction. From the perspective of the individual client, financial planning could mean nothing more than locating the least expensive credit card, or finding the best way to save for a child's college education. From the perspective of the "financial planner," it could be the advice given by an investment adviser or stockbroker on what stocks the client should purchase, or the ledgers provided by a life insurance agent comparing the relative advantages and disadvantages of purchasing term or permanent life insurance. The difficulty here is that the process tends to be focused on doing, but short on planning.
Source And Depth Of Advice. It could also be argued that financial planning does not begin until the individual client consults with his investment adviser, insurance agent, tax attorney, CPA, or other such advisor, on more in-depth matters relating to either investment, insurance, or tax planning. Again, the difficulty here is that the process may be appropriately in-depth, but is narrow in scope and fails to consider all aspects of the client's financial situation.
Comprehensive Planning. And finally, there is the comprehensive must-do-it-all approach to financial planning. Clearly, this approach takes the high ground in maintaining that true financial planning involves a coordinated process of gathering facts relating to all areas of the client's financial affairs, determining the client's overall financial goals and objectives, and designing and implementing plans and strategies for attaining these goals. Although individuals involved in the financial planning process come from diverse backgrounds, the focus should not be so much on who is working with the client, but rather on assuring that the client receives comprehensive and in-depth advice that is implemented in coordination with the client's overall financial situation.
The financial planning process is important, not only in creating a "financial road map," but also in creating a better awareness of the short and long-term consequences of every-day financial and consumption decisions. Once armed with this knowledge, financial planning will become a day-to-day exercise, not just a once every few years or a once in a lifetime event.
HERE ARE THE TYPICAL GOALS OF FINANCIAL PLANNING
It has been said that financial planning involves risk management; the risks of dying too soon, becoming disabled, and living too long. While this is certainly true, some of the following goals clearly fall outside of the concept of risk management, yet are important elements in many financial plans.
1. Improve current standard of living.
2. Protect property from loss and damage.
3. Protect family from large medical expenses.
4. Reduce or eliminate debt, particularly high-interest credit card debt.
5. Provide for ongoing income in case of disability.
6. Create an emergency fund.
7. Increase net worth through savings and investments.
8. Minimize income taxes.
9. Accumulate funds for specific large investments, such as weddings, vacation homes, and extensive travels.
10. Provide funds for child's education.
11. Provide for a comfortable retirement.
12. Protect family in case of premature death.
13. Create an estate plan for disposition of assets at death.
14. Pass business interest to surviving family members.