The Financial Planning Process
Building Financial Confidence: An Insight into the Financial Planning Process
Recently rewatching the classic 1990s film Forrest Gump brought to mind the famous line, “Life is like a box of chocolates; you never know what you’re going to get.” While this could ring true when considering unforeseen circumstances beyond one’s control, it spurred thoughts about how it relates to financial planning. As a financial planner, the goal is to ensure this adage doesn’t hold water in financial terms. Although it may be challenging to predict exactly how financial goals will unfold, the aim is to have a well-structured plan and a fair idea of which “chocolate” you choose.
Ever encountered a box of chocolates without a flavor guide? It can lead to trepidation and unpleasant surprises, like biting into an unwelcome orange cream. As financial planners, the objective is to demystify the process, thereby reducing future anxieties. The goal is to help you make educated decisions about your finances, whether they relate to immediate or long-term plans, retirement strategies or estate planning.
Creating a comprehensive financial plan involves following a seven-step process. While some steps may require more time and work than others, the end goal is always the same – a solid plan. It’s important to provide accurate and complete information as this greatly affects the effectiveness of the plan and the recommendations provided. It’s crucial to avoid overlooking important details when managing investments independently, as this can have a negative impact on your financial well-being and even your family’s future security. Although external factors like market fluctuations, recessions, inflation and geopolitical events are beyond our control, we can only manage our own emotional reactions and financial risks. Working with a financial planner can provide peace of mind, keep financial goals in focus and help avoid unnecessary risks and anxiety. Here’s a detailed look at the financial planning process.
Step 1: Understanding Personal and Financial Circumstances
The process begins with a comprehensive understanding of your current personal and financial circumstances. This involves gathering extensive information ranging from health and life expectancy to Social Security details, earnings, assets and liabilities. No detail is too small as every bit of information helps craft a finely tuned financial plan. The approach is to begin with a broad perspective and gradually focus on the intricate details of your financial landscape.
Step 2: Identifying Financial Goals
The next stage is to identify financial goals. This process involves identifying short-term and long-term objectives, income expectations in retirement, philanthropic intentions, legacy planning, and prioritizing selected goals. Questions about risk tolerance are introduced – how much financial risk are you comfortable with and what does risk look like in your financial plan in order to achieve these goals? The aim is to ensure the goals are attainable. At this stage, an honest and open discussion about the potential steps required to reach these goals is of utmost importance.
Step 3: Evaluating Current Financial Status & Strategies
This phase entails dissecting the collected information to evaluate your current financial strategies and their effectiveness. Is the present course of action working? If not, what enhancements can be made or what alternative approaches can be employed? The answers to these questions vary based on the progress in your financial journey. If you’re unsatisfied with your current plan, you may need to change your strategy. If you’re working with a planner for the first time, you may need to start from scratch.
Step 4: Developing a Financial Plan
With a solid grasp of your current situation and objectives, the focus then shifts to the creation of a financial plan. This involves laying the groundwork for recommendations and formulating a roadmap for implementation. The plan must reflect your unique goals and personal circumstances. The success of this plan heavily relies on a solid relationship between you and the planner, making trust-building a priority during this stage. For the plan to reach its full potential, your active involvement and commitment are indispensable.
Step 5: Presenting & Identifying Actions
The next move is to identify and analyze the necessary actions and services. This could encompass a wide range of elements, from recommending certain types of accounts or financial products to considering life, disability or long-term care insurance. It may even extend to estate planning or coordinating with a chosen attorney to ensure important legal documents such as wills or durable powers of attorney are in order.
Step 6: Implementing the Financial Plan
Executing the financial plan is a critical stage in the financial planning process that involves putting the recommendations into action. This includes initiating the financial products and services identified in the plan and adjusting financial behaviors in accordance with the strategy. Implementation can involve a wide array of tasks, such as setting up new accounts, transferring funds, or purchasing insurance policies to mitigate risk. This is the stage where paperwork is typically completed and submitted to establish the accounts or policies recommended in the plan.
Execution might also involve lifestyle adjustments, such as altering spending habits or increasing savings, in accordance with the recommendations. This stage is not only about initiating activities but also about committing to changes that align with the financial plan’s objectives. It’s important to note that effective implementation is a collaborative effort between you and your financial planner. While the planner guides and facilitates the process, you must be actively involved in making decisions and following through on actions.
Without diligent implementation, the plan remains incomplete and could introduce future financial uncertainties. This step emphasizes the importance of action; the most well-crafted plan only has value when it’s carried out in reality.
Throughout the implementation phase, the financial planner continues to serve as a resource, answering questions and providing support as needed. Your understanding and comfort with each action are critical to ensure continued commitment and active participation in your financial journey.
Step 7: Monitoring and Updating the Plan
The final step in the financial planning process is monitoring and updating the plan. Since goals and circumstances are subject to change, regular reviews of the financial plan are necessary. The recommendation is for at least an annual review to stay abreast of the financial plan.
Even though the financial planning process might seem daunting or overwhelming, it’s important to remember that every journey begins with a single step. You may feel that your financial circumstances aren’t significant enough to warrant attention or perhaps, you may feel embarrassed about your current financial status. However, these feelings should never prevent you from seeking guidance.
Taking the time to address your financial well-being with a dedicated guide can pave the way to a future filled with financial confidence. You’ll have the assurance that every step taken is a stride toward financial success.
As with a box of chocolates, life is filled with surprises – some more appealing than others. But with a robust financial plan in place, you’re equipped to navigate your way toward the more desirable chocolate, steering clear of the proverbial orange crème – unless, of course, that’s your favorite. In that case, to each their own – life is a varied assortment, after all.
Seeking guidance from a financial planner is not just about the immediate benefits. It’s about gaining the knowledge and tools needed for a secure, prosperous future. Contact an Adams Brown Wealth advisor to learn how we can kick-start your comprehensive financial plan.