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:
- Written goals (along with a tracking system) are much more likely to be obtained
- 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:
- Part 1: The basics of financial planning, what is financial planning?
- Part 2: Personal Financial Planning, History, Process and Options
- Part 3: Financial Planning Basics: Financial Planning Myths
- Part 4: When to Update Your Financial Plan
- Part 5: Is Suze Orman Right: Can you do your own financial planning?
i Antoine de Saint-Exupery
