Short answer, it is the process of knowing where you are financially and planning ahead on how you can achieve your financial goals.
Financial planning involves a series of steps which includes:
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- Financial goal setting
- Net worth and cash flow analysis
- Risk tolerance
- Education planning
- Retirement planning
- Insurance planning
- Special needs planning
- Tax planning
- Estate planning
- Monitoring and follow up
Why we need it
Because money, no matter how much of it you have now is finite and can possibly be exhausted without proper planning. A good financial plan will shield you and your dependents from “shocks” that may occur in your lifetime. It will help you realize (or adjust) your financial goals such as buying a car, house or education for your children. It will help you identify any leaks in your cash flow and how to rectify it. It will help you maximize the return for your investments. It can help you plan your estate to prevent family conflicts when the time comes. All these and more are the direct benefits of having a sound financial plan. It is the responsibility of any breadwinner of a family to have a financial plan.
What do I need to start?
If you want to do it on your own, you can attend courses online about financial planning. Coursera offers one about personal and family financial planning but the course is focused on the US system. It is important you attend courses that talk about your country as taxes, regulations, laws, retirement funds, bank products are very important in financial planning.
You can also consult your friendly neighborhood financial planner to get started. I will also talk more about the different steps in financial planning in future articles on this website.
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Financial Planners
They are individuals who have undergone certification training in financial planning. They have a good grasp of investments and investment computations, taxation, estate planning, insurance, and retirement planning.
Note that insurance agents may not necessarily be certified financial planners. Insurance companies sometimes call their agents as “Financial Advisors” which can be confused with “Financial Planners”. Insurance agents who are called “Financial Advisors” who are not certified financial planners are only adept in one aspect of financial planning and that is insurance planning. They don’t necessarily have sound knowledge about investment, estate, and tax planning.
Test the knowledge of your prospective financial planner by asking them to explain key concepts about financial planning including Internal Rate of Return (IRR), Time Value of Money (TVM), taxes for a donation of properties, and taxes on inheritance. If they cannot answer any of these basic concepts, better look for another one.
Below are the certifying bodies for each country:
US – CFP (visit website)
Philippines – RFP (visit website)
India – CFPCM (visit website)
Canada – CFP (visit website)
UK – CFP (visit website)
Singapore – CFP (visit website)
