What is Financial Planning? - (and why do you need it?)

What is Financial Planning?

Financial Planning is the process of meeting the goals of your life through the proper management of your financial resources. It covers all matters related to your estate and your current financial situation and includes such elements as day-to-day cash flow management, choosing and managing your investments, retirement and estate planning, your insurance needs and tax planning. The financial planning process is a comprehensive exercise, a logical step-by-step approach undertaken with your professional advisor to deliver a tailored, overall strategy designed to satisfy your immediate concerns as well as your long-term financial security.

Why have a Financial Planner?

Modern life is complicated - and hectic. Often we feel we are too consumed with the more mundane problems of day-to-day living to find the time to manage our longer-term financial affairs with the care they deserve. As well, designing a plan for your financial future requires a multi-disciplinary approach; most of us don’t have the knowledge or the time to acquire it. Some of the more commonly-cited reasons people give for why they sought out a financial planner are:

a) to assist with the time and effort of managing their finances,

b) to get timely advice on markets and investment opportunities,

c) to seek advice on tax-reduction,

d) budget planning in order to optimize their investable income,

e) to optimize their retirement savings.

What Does a Financial Planner Do?

As a practitioner of the financial planning discipline, your financial planner will assess where you are now, help identify your goals for the future and develop a plan for reaching your objectives. The process involves the following steps:

Determine what your current situation is and what your objectives are for the future.

How much are you worth?

How much do you need to retire on?

When do you want to retire?

The first step is an assessment of your circumstances and long-term goals. Net worth, cash-flow and your latest tax statements are indispensable to this end. In addition, personal information - your health and life style, your immediate family & relations, marital status, dependencies etc. and your personal investment profile - your risk tolerance and knowledge of investing all need to be considered.

Analyze your Financial Status

This part of the process examines the matter of how able you are to meet your financial goals based on the information supplied in step 1. Your income and expenses are weighed against your retirement objectives. Issues like debt management, your current and future insurance needs, the appropriateness of your current investments ( if any ) and participation in retirement savings plans are dealt with.

Recommend a Financial Plan

This is the point at which your advisor will recommend a strategy by which financial resources - current and anticipated -may be best utilized to satisfy both your immediate needs and achieve your long-term objectives. The sort of details this might include are:

• Budgeting plan for current living expenses,
• Specific retirement plan contributions and portfolio of investments within your registered retirement plan,
• A non-registered investment program,
• Advice on tax planning,
• Advice and guidance on the drafting of your Will,
• Your target retirement age given what you might expect from your retirement savings growth.

The financial plan recommendations from your advisor can be written if you so prefer, should be specific, quantifiable and attainable. You should clearly understand every aspect of the plan and be confident it is tailored to your means and will deliver the expected results.

Implementation of the Plan

Your financial advisor can assist with the implementation of your plan. He or she can help provide the initiative to execute the plan and the discipline to stick with it as well as recommendations with respect to other professionals whose services you may require at this point - e.g. lawyer, accountant, or stockbroker.

Periodic Review of your Plan

Because your plan has quantifiable, measurable goals your advisor can review the plan from time to time and assess its effectiveness. Are your investments current and performing as expected? Has your tax liability changed significantly? Has there been a change in your personal situation that might affect your estate plans - a marriage?; the birth of a child or grandchild? The regular review of your plan is an important and often neglected step in the overall planning process.