Part 1: Basics of Financial Planning – What is Personal Financial Planning?

Personal Comprehensive Financial Planning: A financial plan serves as an ongoing master plan for your money.  It also serves as a cornerstone for decision making throughout your life.  All of life’s decisions affect our finances; education, home purchases, vacations, and children, and a multitude of choices also have an affect on college planning, retirement, etc.  A financial plan should be changeable so that you can track progress on your goals and you can account for the unexpected.

The Need for Financial Planning: Most people need written and computerized financial plans to increase the likelihood of achieving their goals. There are two reasons for this:

  1. Written goals (along with a tracking system) are much more likely to be obtained
  2. The myriad of complex moving parts of the financial world and endless options demand a program to help people navigate.

These are the reasons we have created eFinPLAN financial planning software for consumers.

Basic Components of Financial Planning

1: Written Goals: “A goal without a plan is just a wish”i.  A plan should contain a set of written goals and the steps to achieve them.  These goals should define your current lifestyle and the one you want to create for the future.

2: Changeable: A financial plan should provide for planned and unplanned contingencies.  It should give you the ability to make changes as your life changes.  Events, such as the birth of a child, purchasing a home or car, or an unexpected bonus or expense, can significantly change your entire plan.

3: A process: Financial planning is a process.  It requires a small initial investment in time to create a plan, and a lifetime of monitoring progress to achieve goals. It also requires self-education in financial matters to stay current.

4: Fitting the pieces together: Finances are complex.  Consider the moving parts of your finances: net worth, future goals, investment planning, risk management, insurance, cash flow, wills, retirement, and college—to name just a few.  A financial plan helps you to become more knowledgeable and to understand the complexities of planning.

5: Personalized: A financial plan should be modified and adapted to your unique needs.  It should not be created with a cookie cutter approach because everyone’s situation is different.

6: Comprehensive:A financial plan should be comprehensive; it should cover most areas of your financial life.


Typical Financial Planning Areas

1. Present Financial Condition

  • Net Worth
  • Data Confirmation
  • Spending
  • Cash Flow
  • Debt
  • Taxes

2. Future Goals

  • Retirement
  • College Education
  • Other Goals

3. Investment Planning

  • Risk Assessment
  • Asset Allocation Worksheet

4. Risk Management/Insurance

  • Cash Reserves
  • Property & Casualty
  • Life & Disability
  • Long-Term Care

5. Spending

  • Cash Flow
  • Debt
  • Taxes

6. Legacy Planning

  • Wills
  • End-of-life Issues
  • Trusts

7. Ongoing

  • Implementation
  • Monitoring progress
  • Updating

8.  Appendix

  • Assumptions
  • Educational Material

As you can see, comprehensive financial planning addresses a lot of areas that many people might overlook.

This is the 1st article in a 5-part series about financial planning:

i Antoine de Saint-Exupery