Before starting off with any venture which will require finances, the investor should be sure about their financial goals. Financial planning is a process of planning out the finances, so the investor will not have any problems in meeting their financial goals for the future. The investor should be sure of the financial goals they want to meet such as their financial goals, evaluating their sources of income. Financial planning is the plan that is needed for finding out the financial requirements of anyone’s financial goals or a business. Financial planning includes generating a financial blueprint for planning the finances keeping in mind the financial requirements of the individual. Financial planning is the comprehensive evaluation of the customer’s investment for the current and future financial state by using all the known variables to predict the cash flows of the future, asset values and withdrawal plans. Most of the individuals who want to start with financial planning will work with a financial planner and they use current net worth, tax liabilities, asset allocation and future retirement and estate plans in designing the financial plans. These metrics will be used with the estimates of asset growth to find out if a person’s financial goals are going to be met in the future or what steps should the investor take to meet their financial goals.
Financial planning does not consist of a specific template, they are generally the plans that are created by professionals who wish to include the knowledge and the goals that the customer will want to meet in the future and the future financial plans of the customer. A well-planned financial plan will indicate the changes that are to be made by the customer to ensure that the customer does not have to go through difficult financial phases like cutting back on the expenditures, liquidizing the assets. Financial planning will also include updating the plans whenever there are any of the changes that are supposed to be made.
Objectives of financial planning:
1. Ensuring availability of funds:
Financial planning assists in the area of generating funds and also making funds available when they will be required. This also includes the estimation of the funds that will be required for emergency purposes, which are, long-term assets and the working capital requirements.
2. Estimating time and source of funds:
Delivering the allotted funds at the right and the right place is an essential part of financial planning. Through financial planning, the investor will be able to handle these easily.
3. Generating capital structure:
Capital structure is basically the proportion of capital which will be required in the business. This also includes planning the debt-equity ratio both short-term and long-term.
The six important steps for effective financial planning are listed below:
1. Establishing a good relationship with the financial planner:
The customer should be transparent with their financial planner for the best results and ensure that the responsibilities are defined before getting into financial planning. The financial planner should fully explain the working and they should agree on how long the relationship will last and, how the decisions will be made for an effective way of financial planning.
2. Collect data, including goals:
A financial planner should ask for information on the financial situation of the customer. The planner should understand the personal and financial goals of the customer for an effective result in financial planning. The financial planner should gather all the necessary documents required before providing them with the information.
3. Analyzing and evaluating financial status:
The financial planner should analyze and understand the financial status of the customer by gathering all the necessary information about their finances to provide them with the best results through financial planning. The customer and the planner should mutually discuss the personal and financial goals before on every aspect. Depending on the services the customer has asked for, the planner will include analyzing the assets, liabilities and cash flow, current insurance coverage, investments or the strategies on tax for good financial planning.
4. Developing alternatives and recommendations on financial planning:
The financial planner should offer good financial planning recommendations that will help the customer reach their goals, based on the information they have provided. The planner should help the customer understand the recommendations, so they can make an informed decision.
5. Implement financial planning recommendations:
The planner should agree on how the recommendations will be carried out. The financial planner may consider the recommendations and carry them out and keeping the customer informed about them and other professionals like stockbrokers.
6. Monitoring financial planning recommendations:
The customer and planner should decide who will monitor the progress towards the goals. If the planner is in charge of the process, they will have to report to you at regular periods on the situations for the adjust of any of the recommendations.