The financial planning process - Part II

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Did not get around to writing Part II last night, after going for a hard run I ate some chicken I had grilled up the day before, strung a tennis racket and watched the Mets lose to the lowly Cincinnati Reds. It’s a beautiful Saturday morning here in NY so I’m going to write this post and then get outside and enjoy the rest of the day.

Back to EGADIM

Step 4 - is to Develop and present a customized financial plan to the client. The plan is broken down in to many parts, usually with a net worth analysis and a cash flow statement to begin (depending on your financial planning software).

The cash flow analysis provides a basis to evaluate your current spending and savings amounts; from here we can target areas where expenses can be reduced to channel more income towards your most important financial goals.

Other parts of the plan include detailed analysis on:

• Retirement Planning
• Education Planning
• Estate Planning
• Survivor Protection
• Income and Asset Protection (i.e. Disability, Life, LTC insurance)
• Investment Planning
• and more…

Each section of the plan is tailored to your unique specs and its quite easy to see where the problem areas are at this point. Since we’ve prioritized your goals and we know what’s most important to you… we know where to start working first. We work our way down the prioritized list making recommendations and offering various solutions where they are needed.

Step 5 - is to Implement the plan. At this point we’ve learned alot about you, we know what your goals and dreams are, we know what is near and dear to your heart. It’s time to take action! One of the common action steps I might take is tweaking the investment strategy to help the client achieve his (or her) stated goals.

The objective with the investment strategy is to get you to your goals with the least amount of risk possible, because the lower the risk, the higher the certainty of success. The less risk…the less market volatility…the less market volatility… the better your clients sleep… the better your clients sleep the better you sleep:)

The beautiful thing about a formal financial plan is you know exactly what kind of returns the client needs (to achieve his goals) before you build (or tweak) the portfolio. So often from the financial plan comes the investment strategy, not the other way around.

If done the other way round (which is often the case), you don’t ever know where you really stand, you don’t know what you are trying to achieve and what it takes to get there… a recipe for poor decisions and possible disaster.

Knowledge is power and the formal financial plan brings everyone together and puts everyone in the know.

Step 6 - is to Monitor the plan. This step is pretty self explanatory and most of the heavy lifting has been done. Periodically, the client and planner will review the plan and determine if any changes are needed. Like I’ve said before, if we do get off course, we’re aware of it rather quickly, making it that much easier to right the ship.

There you have it, the six steps in the financial planning process:

Establish
Gather
Ananlyze
Develop
Implement
Monitor

I hope the last 2 posts help you to understand the financial planning process a little better and the tremendous benefits derived from it. In future posts, I may break down each of the steps into gory detail for those that are interested.

Always remember the creed… chance favors the prepared mind.

Tags: Financial Planning Retirement and Now!