The financial planning process
Details of how Cavendish Ware approach Financial Planning, and the processes we use, can be found in the section How We Work.
However, the following paragraphs, taken from The Institute of Financial Plannings guide, What you Should Know about Financial Planning, you may find very useful. Cavendish Ware are members of the institute.
What is Financial Planning?
Financial planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a home, saving for your child's education, planning for retirement or estate planning. The process involves gathering relevant financial information, setting life goals, examining your current financial status and coming up with a strategy or plan for how you can meet your goals given your current situation and future plans.
The Benefits of Financial Planning
Financial planning provides direction and meaning to your financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances. For example, buying a particular investment product might help you pay off your mortgage faster or it might delay your retirement significantly. By viewing each financial decision as part of a whole, you can consider its short and long-term effects on your life goals. You can also adapt more easily to life changes and feel more secure that your goals are on track.
Can You Do Your Own Financial Planning?
The simple answer is yes. Some personal finance software packages, magazines or self-help books can help you do your own financial planning. However, you may decide to seek help from a professional financial planner if:
- You need expertise you don't possess in certain areas of your finances. For example, a planner can help you evaluate the level of risk in your investment portfolio, adjust your retirement plan due to changing family circumstances or provide tax advice that will contribute to the planning process.
- You want to get a professional opinion about the financial plan you developed for yourself
- You don't feel you have the time to spare to do your own financial planning.
- You have an immediate need or unexpected life event such as a birth, inheritance or major illness.
- You feel that a professional adviser could help you improve on how you are currently managing your finances.
- You know that you need to improve your current financial situation but don't know where to start.
Be Sure You're Getting Financial Planning Advice
The government does not regulate financial planners as financial planners; instead, it regulates planners by the services they provide. For example, a planner who also provides investment advice is regulated by the Financial Services Authority as a Financial adviser. As a result, the term “financial planner” may be used inaccurately by some financial advisers. To add to the confusion, many financial advisers can also offer financial planning services. To be sure that you are getting financial planning advice, ask if the adviser follows the process described below.
The Financial Planning Process consists of the following six steps:-
1. Establishing and defining the client-planner relationship.
The financial planner should clearly explain or document the services to be provided to you and define both his and your responsibilities. The planner should explain fully how he will be paid and by whom. You and the planner should agree on how long the professional relationship should last and on how decisions will be made.
2. Gathering client data, including goals.
The financial planner should ask for information about your financial situation. You and the planner should mutually define your personal and financial goals, understand your time frame for results and discuss, if relevant, how you feel about risk. The financial planner should gather all the necessary documents before giving you the advice you need.
3. Analysing and evaluating your financial status.
The financial planner should analyse your information to assess your current situation and determine what you must do to meet your goals. Depending on what services you have asked for, this could include analyzing your assets, liabilities and cash flow, current insurance protection, investments retirement or tax strategies.
4. Developing and presenting financial planning recommendations and/or alternatives.
The financial planner should offer a financial plan which includes the recommendations that address your goals, based on the information you provide. The planner should go over the recommendations with you to help you understand them so that you can make informed decisions. The planner should also listen to your concerns and revise the recommendations as appropriate.
5. Implementing the financial planning recommendations.
You and the planner should agree on how the recommendations will be carried out. The planner may carry out the recommendations or serve as your “coach,” coordinating the whole process with you and other professionals such as solicitors, accountants or stockbrokers.
6. Monitoring the financial planning recommendations.
You and the planner should agree on who will monitor your progress towards your goals. If the planner is in charge of the process, they should report to you periodically to review your situation,
update the financial plan and adjust the recommendations, if needed, as your life changes.
Best Practices When Approaching Financial Planning
- Set measurable goals.
- Understand the effect your financial decisions have on other financial issues.
- Re-evaluate your financial plan periodically.
- Start now – don't assume financial planning is for when you get older.
- Start with what you've got – don't assume financial planning is only for the wealthy.
- Take charge – you are in control of the financial planning process.
- Look at the big picture – financial planning is more than just retirement planning or tax
- planning.
- Don't confuse financial planning with investing.
- Don't expect unrealistic returns on investments.
- Don't wait until a money crisis to begin financial planning.
How To Make Financial Planning Work For You
You are the focus of the financial planning process. As such, the results you get from working with a financial planner are as much your responsibility as they are those of the planner. To achieve the best results from your financial planning arrangement, you will need to be prepared to avoid some of the common mistakes by considering the following advice:
Set measurable goals.
Set specific targets of what you want to achieve and when you want to achieve results. For example, instead of saying you want to be “comfortable” when you retire or that you want your children to attend “good” schools, you need to quantify what “comfortable” and “good” mean so that you'll know when you've reached your goals.
Understand the effect of each financial decision.
Each financial decision you make can affect several other areas of your life. For example, an investment decision may have tax consequences that are harmful to your estate plans. A decision about your child's education may affect when and how you meet your retirement goals. Remember that all of your financial decisions are interrelated.
Re-evaluate your financial situation periodically.
Financial planning is a dynamic process. Your financial goals may change over the years due to changes in your lifestyle or circumstances, such as an inheritance, marriage, birth, house purchase or change of job status. Revisit and revise your financial plan as time goes by to reflect these changes so that you stay on track with your short and long-term goals.
Start planning as soon as you can.
Don't delay your financial planning. People who save or invest small amounts of money early and often, tend to do better than those who wait until later in life. Similarly, by developing good financial planning habits such as saving, budgeting, investing and regularly reviewing your finances early in life, you will be better prepared to meet life changes and handle emergencies.
Be realistic in your expectations.
Financial planning is a common sense approach to managing your finances to reach your life goals. It cannot change your situation overnight; it is a lifelong process. Remember that events beyond your control such as inflation or changes in the stock market or interest rates will affect your financial planning results.