Financial planning focuses on creating a plan that organizes a person’s income, debts and other components to determine the best way to potentially achieve financial goals. During the financial planning process, a financial planner will address different areas of the client’s life, such as cash flow, education, retirement, investments, taxes, business and estate planning. A client may also have special circumstances that require attention, such as if he or she is purchasing a home, going through a divorce, suffering from a terminal illness or has a dependent with special needs.
While the financial planning process is slightly different for everyone, most plans begin the same basic way. A financial planner will gather relevant information pertaining to the client’s financial situation. This may include a list of income, debts and personal and financial objectives. This information is then analyzed to determine where the client currently stands financially and what steps need to be taken to reach certain objectives.
Starting the Financial Planning Process
In the initial step of the process, the financial planner will clearly define the services being provided and the responsibilities of the client. Establishing a client relationship helps ensure that both parties are clear on what is expected of them and how they can best work together to accomplish financial goals.
Without a solid financial plan in place, it can be challenging to reach life goals. A financial plan should provide a clear picture of a person’s financial situation and establish both short-term and long-term objectives. When starting the financial planning process, here are a few things that a client can expect to happen.
Determine Your Current Financial Position
To determine a client’s current financial position, a financial planner will ask for bank statements, pay stubs, assets, debts and any other money that may exchange hands on a regular basis. This includes any money placed in a retirement account, investments, real estate and other property like motor vehicles.
With all of this information, a financial planner can establish where a person stands financially and what improvements are necessary to help the client reach its goals within a specified timeframe. To determine a person’s net worth, a financial planner will subtract their liabilities (what is owed) from their assets (what is owned).
Develop Your Goals
Goal development is one of the most important components of a financial plan. The reason for establishing goals during the financial planning process is to give the plan a purpose. Every person’s financial goals are unique and may change over time. For example, a client may have a goal of paying off all debt and saving for a down payment for a home. Another client may want to put a certain percentage of their income into a retirement account. Goals should be periodically analyzed and modified if needed based on the client’s life stage and changes that may occur over time.
Identify Numerous Avenues of Action
Not every decision made will ultimately work in the client’s favor. If an unexpected scenario or accident occurs that disrupts a client’s financial plan, it may be necessary to alter the plan to fit the client’s new financial status. With help from a financial planner, clients can identify different avenues of action.
Courses of action generally fall into several main categories. A client can continue on the same course of action if the event did not cause major disruption. The client can also choose to expand the current situation or change the situation. In some cases, a client will need to take a new course of action. Evaluate different courses of action while taking into consideration personal values, current life status and economic conditions.
Speak to a Professional Wealth Management Advisor
The importance of financial planning is often underestimated. According to a new study published by the Journal of Consumer Research, financial well-being was found to be directly linked with overall well-being. However, financial planning is not always a straightforward process.
Financial planners can help clarify this process by organizing data and developing strategies designed to help clients reach their financial goals. An experienced financial planner will help develop a flexible plan that is able to grow and change over time.
Start Your Financial Planning Process with Campbell Wealth
There are countless benefits to starting the financial planning process. It can help ensure that a person is able to fund educational endeavors, prepare for marriage and the birth of children, care for aging parents and acquire enough money to last through retirement. Financial planning can also be useful when faced with a financial crisis, such as a layoff, natural disaster or serious illness.
Financial planning professionals help keep clients on track during their journey. To learn more about how to start the financial planning process or to speak with an experienced financial planner, contact the advisors at Campbell Wealth Management, Inc.
