The financial planning is not always be the same as wealth management. Wealth management generally refers to investment management for a client. stocks, bonds, mutual funds, and other investments a client needs to invest their money in. Let us understand what is financial planning along with its meaning and financial planning process in broad detail.
What is Financial Planning?
Financial planning means making a plan to achieve your desired goals, specifically how you want to manage your savings, expenses and prepare for any costs and potential issues that may arise. The process involves assessing your current financial situation, identifying your goals, and then developing and implementing relevant recommendations.
Definition of Financial Planning
It is the process of defining financial policies with respect to the sourcing, investment and administration of a company’s funds. It’s a step-by-step approach to achieving life goals.
For example, if you want to create a corpus fund of 1million for your daughter’s college education through investments, you need to increase this amount when she turns 18. Not a year later. This is where financial planning plays a vital role in individual’s life.
What is Financial Planning for a Business?
Financial planning for a business is a very broad category and variety of services, which we detail below. Rather than focusing on just one aspect of your finances, treat customers like real people with a variety of goals and responsibilities. He then turns to a number of financial realities to understand how to empower people to get the most out of their lives.
Wings to put the rest of your business plan into context.And above all, he is far-sighted. Even if you use existing accounting data (if you already have it) and experience to create your plan, it is not just a copy and paste of your accounting data. Instead, you take a look at your business goals and define the level of investment you’re willing to make to achieve each of those goals.
The company creates a financial plan immediately after setting the vision and goals. The financial plan describes each of the activities as well as the expected time-frames. The activity of the financial plan includes the following tasks:
- Assessing the business current situation.
- Confirming the activity, vision and goals.
- Identifying the resources to achieve these goals.
- Quantify the amount of resources and equipment’s.
- Calculate the total cost of each resources.
- Summarize costs to create a budget and financial plan.
- Identify problems / risks and allocating sufficient budget for it.
What is Financial Planning Process?
Financial advisor will determine how to manage your finances today so that you can relax in the future. There are six steps to involved in financial planning process. From start to finish, a top financial advisor companies in world can walks you through the financial planning process taking into account your current financial situation. Let us see take an overview on the whole financial planning process below.
Identifying Current Financial Situation
Identifying your financial situation, position and investment capacity is the initial stage of the financial planning process, you will determine your current financial situation regarding family income, savings, family commitments, living expenses, tax situation, strategies and debts.
In addition to this, it determines other obligations of financial such as: wedding expenses, purchase of a property, emergency reserve fund, pension fund, etc. List down the amounts spent on various items gives you a basis for understanding financial planning activities.
Identify Alternative Action
It is necessary to assess possible courses of action, taking into account one’s life situation, current conditions and personal values. Consequences of choices. For example, a decision to invest in stocks may mean you need to keep a close watch on daily basis.
Opportunity cost is what you give up by making a right choice compromise of a decision, cannot always be measured in terms of money value. Decision making is an important and integral part of your personal financial situation. Therefore, you will need to reconsider the missed opportunities as well.
Evaluate Alternatives Actions
The next and important step in the whole financial planning process is to evaluate the possible courses of action. When evaluating action plans, it is important to take into account the person’s life situation, current values and economic conditions.
Individuals must also be aware of the trade-offs in their decisions. For example, a person may choose to use their money to pay off their mortgage, but in turn, they will not be able to go on vacation this year.
When evaluating multiple options, you may come across with uncertain ideas. For example, choosing your full-time job over your studies carries risks. Other decisions of financial involve a relatively low to medium degree of risk, such as saving, budgeting or buying something of great value with it.
How can you make sure that your plan is rewarding for your future? You should collect enough data based on your own experience and data based on others feedback and comments. Decision making will require you to frequently update your stand in terms of political, social and economic knowledge so that you can make correct decisions.
Develop and Implementation of a Financial Plan
Once you are satisfied with the financial plan and feel comfortable moving forward, the plan will be implemented in the next stage. In this stage, financial planning process can be thought of as an action plan where you choose the means to achieve your goals. This is often seen as the most difficult step for some people, but it does a huge difference.
The key thing to consider here is to implement the financial strategy as early as possible. Longer implementation will take longer time to grow your wealth ultimately, a significant shortfall in your life savings.
Reviewing, Monitoring and Revaluating
Financial planning is a dynamic and ongoing process that does not end by taking a single or couple of action. You should regularly evaluate your financial position, goals and decisions. Changes in personal goals, world economy may require frequent assessments.
You need to adjust the financial plan when it gets impacted due to life events. Reviewing this financial decision-making process frequently will help you to correct it at earlier stage by making changes that will align with your financial goals and activities.
Following the financial planning process properly defined and documented will give the best chance of success. Financial planning is about the elements of a person’s financial life and developing a plan to help you as an individual meet their financial goals. It can include a number of services such as Tax Planning, Retirement Planning, Real Estate Planning and Marriage Funding Planning.