My Definition of Financial Planning
Financial Planning is a Systematic Process of meeting one’s life goals through Proper Management and Conscious Discipline towards one’s finances. It aims to improve the standard of living, decrease the probability of financial crisis, to protect one’s investments and to accumulate wealth over time so as to achieve personal financial goals.
Scope of Financial Planning
The scope of Financial Planning can be broken down into several components:
* Risk Management
* Cash Flow Management
* Investment Management
* Education Funding
* Taxation Planning
* Estate Planning
* Retirement Planning
The 4 Pillars of Wealth Management
I’ll normally group the above components into the 4 Wealth Pillars.
1) Wealth Protection – The ability to protect your wealth in event of unforeseen events
2) Wealth Maintenance - The ability to maintain your wealth that they do not shrink over time
3) Wealth Accumulation – The ability to accumulate your wealth to achieve your financial goal.
4) Wealth Distribution – The ability to distribute your wealth as per your wishes on demise
Steps of Financial Planning
The entire process of financial planning can be broken down into 6 steps:
1) Establish Goals and Priorities
2) Collection of Data and Facts
3) Analysis of Data and Facts collected
4) Development of a Plan for achieving Goals
5) Implementation of Strategies
6) Periodic Review
The 6 steps are the backbone to any financial plan, be it comprehensive or partial. The individual must be very aware of these 6 basic steps and that there cannot be any shortcuts involved in any planning.