Financial Planning Process
In my last post I have discussed basics of financial planning.
Today I will be discussing the financial planning process –
Everybody have a wish list. Few wishes can be quantifiable in monetary terms.
Like – Buying a Home, Upgrading a Car, Foreign Holiday etc.
Rest can’t be quantifiable.
Such as – Peace, Satisfaction, Happiness and so on …..
I will discuss how one can achieve there wishes denominated in money terms.
For fulfilling any wish one has to have a plan. Without planning one can not achieve anything in life.
While planning for your financial wishes you need to follow a disciplined approach.
This Financial Planning Process is a bit lengthy one but worth of doing it.
Please note that for carrying out following procedure one needs to have expertise.
In short a Financial Planner can carry out this process efficiently.
Financial Planning Process –
- Data Gathering - In this primary step one need to get there books of accounts right.
What are all expenses – Daily/weekly/Monthly/Yearly or occasionally need to note down.
Also all the sources of income recorded.
Information regarding existing investments should also be recorded.
- Setting up financial objective – After gathering financial data one can set there financial objective aka financial wishes. It can be anything as big as buying a Home or something as small as buying a LED television. You again need to bifurcate this wish list into two categories.
a. Tier I Goals
Goals which are essential in ones life.
Like – Buying a home, Child Future, Retirement etc.
b. Tier II Goals
Goals which are luxurious in nature.
Like – Foreign Holiday, Farm House etc.
- Cash Flow Analysis & Derivation of expected rate of Return –
Ones you gather the data and decide upon your financial objective, a Financial Planner will analyze your cash flow and derive the expected rate of return at which your surplus money need to grow in order to achieve all your financial goals.
Deriving the expected rate of return is the crucial step in any financial planning. This rate gives us the base to build our financial plan.
During this step if derived expected rate of return is coming to unrealistic level then one need to realign there financial goals.
Ones financial goals are realigned & again expected rate of return is derived to practical level one can act accordingly.
- Cash Flow Protection aka Insurance Planning –
After realignment of goals I& expected rate of return now important step is to protect the premise of the plan i.e. Cash flow of a person.
This include deriving the corpus required to sustain life of a dependents & fulfilling all the essential financial goals. In scientific & structured way amount of insurance cover is calculated & insurance plan is implemented for a person.
This plan will include life cover, health cover as well as disability cover.
- Creation of Investment Portfolio & Risk Mitigation
After protecting cash flow, next step is creating an investment portfolio for achieving your financial goals in given period of time. Designing of this portfolio is largely depend upon expected rate of return & time available for achieving financial goal.
Also with help of risk mitigation techniques risk is minimized to the extent of achieving the financial goals.
Portfolio is diversified among the different asset classes with different weightages as a part of risk mitigation technique. This whole process is based on scientific methods.
Here a skill of financial planner is tested. His expertise in forecasting return potential of different asset classes, selection of investment instruments is of utmost importance.
- Implementation of Investment Portfolio & Monitoring –
After creating a Investment Portfolio now comes the implementation phase. Suggested portfolio need to be implemented in disciplined way. It is always said that Indians are good with planning but bad with implementation. That’s the reason implementation & monitoring become important in financial planning.
- Review – All the efforts of planning are in vain if there is no timely review. For financial plane to work effectively & efficiently one need to get the plan reviewed at least once in a year. During the years time few goals are either changed or modified. Also there might be a chance of increase in liability, increase in family size, changes in income etc. Investment portfolio can be fine tuned if required.
This is in brief how financial planning is done. For practical implementation or more information on financial planning you can always feel free to contact me at –
Cell # - +91 95 95 41 77 38
Thank You.
