What are the 7 areas of financial planning?

Cash Management, Budgeting and Debt Management. Believe it or not, cash management is the heart and soul of your current or future retirement planning. The calculation for retirement is actually a reverse calculation process. In other words, financial planners need to know how much you spend before retirement so they can calculate how much you need to save.

The process is analogous to first entering your destination into a GPS before driving to it. Financial planning is a general term that consists of several aspects of one's finances. People often confuse financial planning with an exercise to sort spending habits and increase propensity to save. While it's true, financial planning has a much greater purpose in a person's life, taking care of income and expenses, as well as investments and compliance, are part of that process.

Financial planning is the ongoing process that helps you make prudent decisions about spending, investing, and transferring your income and assets to help you achieve your goals. Determining your college savings strategy isn't as easy as it sounds. College planning is about understanding the options that exist and providing you with solid advice to help your son or daughter achieve their aspirations. When most people think about financial planning, they can think about investing.

A lot of people ask: “What is the latest stock on sale? or “What is the best investment fund? Studies have shown that these are bad questions because investing isn't about the latest stocks or timing the market. However, what investing really is is a strategy that takes into account your objectives, your risk tolerance and your schedule. Then, develop the best investment strategy to meet those objectives. Your investment strategy should be the foundation for meeting your retirement goals, college goals, and other long-term goals.

If done correctly, your portfolio strategy should include a combination of asset allocation that minimizes risk across a well-diversified global pool of assets (properly correlated), such as stocks, bonds, and other alternatives. The combination of assets and portfolio correlation factors are customized to your specific needs and are key to the long-term success of the portfolio. Investing is very individual and is based on many factors. The best way to start is to write your Investment Policy Statement (IPS) that outlines your objectives, the levels of risk you are willing to take, and the overall strategy (active versus passive investor).

The IPS can be your guide to all the investments you make or that your financial advisor makes on your behalf. Some of life's most important goals may be how you transfer money at the time of death. Estate planning, including wills, trusts, durable power of attorney, and medical directives, are also part of financial planning to help you meet your end-of-life goals. Blended families face unique end-of-life asset transfer challenges.

The protection of the children of the spouse who is the first to pass in the current marriage must be planned well in advance. Ideally, you should start investing to achieve financial goals early in life, but any time is a good time to check your current financial situation and assess how you are doing. Are you still on the right track? Do you have other goals that you haven't considered before? Having a financial plan helps you assess where you are today and where you want to go next. If you're saving 20-30% of your pre-retirement income, then the 80% income replacement rule is a good place to start.

Otherwise, it's safer to try to cover 100% of your pre-retirement income, minus whatever you're saving for retirement. As with any general rule, there are many exceptions. So make sure you sit back and adjust your retirement budget as the time approaches. This should be your top priority, as you can borrow for most other goals, but not for retirement.

If you're not sure where to start, a financial advisor can help you prioritize and then determine how much of your budget should go to your debts each month. Getting a comprehensive financial plan is similar to having a comprehensive blood test when you first visit your family doctor. The bottom line remains that financially securing your post-retirement life is only possible through thorough planning. When a life event occurs, such as marriage, the birth of a child, or a medical situation, it's a simple matter of adjusting the financial plan in the same way that you would modify your roadmap to take a more scenic route.

CFP (r) financial planning professionals are expected to complete the entire 7-step financial planning process with all clients as part of the engagement (except the implementation and monitoring phases of hourly project planning). In the event of a financial deficit, it can be addressed by setting aside a sufficient amount of money regularly and years in advance, preferably as soon as the child is born. They must be followed to comply with the Code of Ethics and the Standards of Conduct of the Board of Standards of Certified Financial Planners if the planner and the client agree that the standards are part of the scope of the compromise between them. Since most people's financial lives consist of seven planning areas (cash management, college planning, estate planning, investment planning, risk management, retirement planning, and tax administration), the investment planning process or portfolio management only accounts for one-seventh of total finance planning.

Education is becoming more and more expensive, and no one wants their children to miss out on an excellent educational opportunity due to financial constraints. The advisor will then review the client's current course of action to see if it is driving them toward their financial goals. Good financial planning includes details about your cash flow, savings, debt, investments, insurance, and other aspects of your financial life. Although financial planners are not usually CPAs, there is a basic level of tax knowledge that a financial planner can provide in terms of the tax consequences of a given financial strategy.

Take a look at the financial planning pyramid to gain a comprehensive understanding of the various pillars of financial planning. . .

Olaf Raedler
Olaf Raedler

Evil beer specialist. Incurable web expert. Total thinker. Infuriatingly humble music geek. General zombie lover. Proud food enthusiast.

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