FINANCIAL PLANNING

A financial planner or personal financial planner is a practicing professional who helps people deal with
various personal financial issues through proper planning, which includes but is not limited to these major
areas: cash flow management, education planning, retirement planning, investment planning, risk
management and insurance planning, tax planning, estate planning and business succession planning (for
business owners). The work engaged in by this professional is commonly known as personal financial
planning. In carrying out the planning function, he is guided by the financial planning process to create a
financial plan; a detailed strategy tailored to a client's specific situation, for meeting a client's specific goals.

Objectives
People enlist the help of a financial planner because of the complexity of knowing how to perform the
following:

• Providing direction and meaning to financial decisions;

• Allowing the person to understand how each financial decision affects the other areas of finance; and
• Allowing the person to adapt more easily to life changes in order to feel more secure.

Defining personal financial decisions

Personal financial planning is broadly defined as a process of determining an individual's financial goals,
purposes in life and life's priorities, and after considering his resources, risk profile and current lifestyle,
to detail a balanced and realistic plan to meet those goals. The individual's goals are used as guideposts to
map a course of action on 'what needs to be done' to reach those goals.

Alongside the data gathering exercise, the purpose of each goal is determined to ensure that the goal is
meaningful in the context of the individual's situation. Through a process of careful analysis, these goals are
subjected to a reality check by considering the individual's current and future resources available to achieve
them. In the process, the constraints and obstacles to these goals are noted. The information will be used
later to determine if there are sufficient resources available to get to these goals, and what other things need
to be considered in the process. If the resources are insufficient or absent to meet any of the goals, the
particular goal will be adjusted to a more realistic level or will be replaced with a new goal.

Planning often requires consideration of self-constraints in postponing some enjoyment today for the sake of
the future. To be effective, the plan should consider the individual's current lifestyle so that the 'pain' in
postponing current pleasures is bearable over the term of the plan. In times where current sacrifices are
involved, the plan should help ensure that the pursuit of the goal will continue. A plan should consider the
importance of each goal and should prioritize each goal. Many financial plans fail because these practical
points were not sufficiently considered. Financial planning should cover all areas of the client’s financial
needs and should result in the achievement of each of the client's goals. The scope of planning would
usually include the following:

Risk Management and Insurance Planning

Managing cash flow risks through sound risk management and insurance techniques

Investment and Planning Issues

Planning, creating and managing capital accumulation to generate future capital and cash flows for
reinvestment and spending
Retirement Planning
Planning to ensure financial independence at retirement including 401Ks, IRAs etc.

Tax Planning
Planning for the reduction of tax liabilities and the freeing-up of cash flows for other purposes

Estate Planning
Planning for the creation, accumulation, conservation and distribution of assets
Cash Flow and Liability Management
Maintaining and enhancing personal cash flows through debt and lifestyle management

Relationship Management
Moving beyond pure product selling to understand and service the core needs of the client
Education Planning for kids and the family members

The process
The personal financial planning process is generally accepted as a six-step process as follows:

Step 1: Setting goals with the client This step (that is usually performed in conjunction with Step 2) is
meant to identify where the client wants to go in terms of his finances and life.

Step 2: Gathering relevant information on the client This would include the qualitative and quantitative
aspects of the client's financial and relevant non-financial situation.

Step 3: Analyzing the information The information gathered is analysed so that the client's situation is
properly understood. This includes determining whether there are sufficient resources to reach the client's
goals and what those resources are.

Step 4: Constructing a financial plan Based on the understanding of what the client wants in the future
and his current financial status, a roadmap to the client goals is drawn to facilitate the achievements of those
goals.

Step 5: Implementing the strategies in the plan Guided by the financial plan, the strategies outlined in the
plan are implemented using the resources allocated for the purpose.

Step 6: Monitoring implementation and reviewing the plan The implementation process is closely
monitored to ensure it stays in alignment to the client's goals. Periodic reviews are undertaken to check for
misalignment and changes in the client's situation. If there is any significant change to the client's situation,
the strategies and goals in the financial plan are revised accordingly.

What is a financial planner's job function?

A financial planner specializes in the planning aspects of finance, in particular personal finance, as
contrasted with a stock broker who is generally concerned with the investments, or with a life insurance
intermediary who advises on risk products.

Financial planning is usually a multi-step process, and involves considering the client's situation from all
relevant angles to produce integrated solutions. The six-step financial planning process has been adopted by
the International Organization for Standardization (ISO).Financial planners are also known by the title
financial adviser in some countries, although these two terms are technically not synonymous, and their
roles have some functional differences.

Although there are many types of 'financial planners,' the term is used largely to describe those who
consider the entire financial picture of a client and then provide a comprehensive solution. To differentiate
from the other types of financial planners, some planners may be called 'comprehensive' or 'holistic'
financial planners.

Other financial planners may specialize in one or more areas, such as insurance planning (risk management)
and retirement planning.

Financial planning is a growing industry with projected faster than average job growth through 2014.

LIFE STAGES OF A PERSON

Life Stages

Stage 1 (Ages 18-29): Stage 3 (Ages 45-54):

Early Adulthood The Prime Years
• Early retirement.
• Forming good financial habits.

• Paying for your children's post-secondary education.

• Starting an investment savings plan.

• Care of aging parents.

• Opening an RRSP.

Stage 4 (Ages 55-65):

Stage 2 (Ages 30-44): Pre-Retirement
Household Formation & Career • Sources of retirement income.

• Greater earnings and greater expenses.

• How much is enough to retire comfortably?

• Diversifying your portfolio beyond mutual funds.

• Reducing your taxes using RRSPs.

Stage 5 (Ages 66 and over):

• Diversifying your portfolio beyond mutual funds.
Post-Retirement
• Options for your maturing RRSP.
• Saving for your children's education.

• Wealth management in retirement.

• Wills, Powers of Attorney and other safeguards.
• Estate planning.
 INSURANCE

Human life is uncertain. It could encounter any event at any point of time. These events can’t be avoided but
one can surely be prepared for them. This is done through insurance. Insurance provides a financial support
to an individual/ family in case of any adverse uncertain event. So the policy holder can sail through any
uncertain event without having to break his savings and investments.

Types of Insurance

Life Insurance : Life insurance ensures that your family will receive financial support in your absence. Put
simply, life insurance provides your family with a sum of money should something happen to you. It
protects your family from financial crises. In addition to serving as a protective cover, life insurance acts as
a flexible money-saving scheme, which empowers you to accumulate wealth-to buy a new car, get your
children married and even retire comfortably. Life insurance also triples up as an ideal tax-saving scheme.

Health Insurance : Health insurance policies insure you against several illnesses and guarantee you stay
financially secure should you ever require treatment. They safeguard your peace of mind, eliminate all
worries about treatment expenses, and allow you to focus your energy on more important things, like getting
better. Let's learn more about the various types of health insurance available, and what the best policy for
you might be.

Retirement Plan : A retirement plan is an assurance that you will continue to earn a satisfying income and
enjoy a comfortable lifestyle, even when you are no longer working. To understand why an increasing
number of individuals have already started planning for their retirement, and why you should too, read on.

The insurance plans are divided into two categories:

1. Traditional Plans : They are pure insurance plans which mainly aim at protection of the policy
holder. They do not provide any returns on the premium paid. They are listed as follows.
Term plans : They provide life cover to the assured. The sum assured is paid to the nominee in case of
death only. No maturity benefits. The premium is only paid till the term of the policy.