PROCESS OF FINANCIAL PLANNING

 PROCESS OF FINANCIAL PLANNING 

The financial goal of most people is to become wealthy . This is the reason why a lot of people are seen chasing their dreams of higher income . This is because, in their mind, a higher income correlates with being healthy. A lot of the time, it negatively affects their health and happiness also. The normal assumption is that if a person has higher income, then they will also have a higher net worth in the future. however, this is not the case . 

The stories of many high - income earners going bankrupt later on in life are not uncommon . these stories can be found in the high earning professional class as well as amongst celebrities. The reality is that long term wealth has been associated with a long term tendency to consistently engage in financial planning . people who pay attention to their finance and takes regular action on a month on month basis to end up being wealthier as compared to their peers.

. In this article, we will have a closer look at the process of financial planning and how it helps maximize wealth over the long run . 

. What does financial planning include ? 

. The goal of financial planning is to ensure that the financial resources of a person are channeled in an optimum way . The objective is to ensure that a person has whatever amount of money they need at certain point in time .

. Human beings tend to have different types of financial goals . Hence, it is no surprise that financial planning is itself internally composed of many different disciplines . Some of the them have been listed below : 

. Planning to acquire assets . 

. Investment planning . 

. Tax planning . 

. Planning of retirement . 

Steps followed in financial planning ?

There are certain predefined steps that need to be followed in order for effectively financial planning . The steps have to be carried out in the sequence mentioned  below :

 1. STEP#1 - Decide on your life goals : A typical financial planning session starts with goal alignment . When people are asked about what they would want from their lives, they often tend to start narrating their financial fantasies of several cars, big mansions, etc. It is important to be realistic at this step . The idea is to segregate the needs from the wants .

 2. STEP# 2 - Know your current situation : The goals should be created, keeping in mind the current financial situation . For intense, if a person is already deeply debt, then they should try to first get out of debt before they can plan their finances effectively . The current incomes and the possibility of change in these incomes should be looked at conservatively before coming to the goals . 

3. STEP# 3 - Evaluate investment alternatives : The next step is to allocate the disposable income to life goals . The idea is to use the best investment vehicle which will provide maximum returns . For instance , if life goals are retirement, using individual retirement accounts is one of the best ways to save money . 

4.STEP# 4 - Set up the investment plan : Finally , after all alternatives have been considered , the investor reviews the final portfolio , which has been decided , This money is than allocated and paid on a month on month basis . 

CONCLUSION - THE BOTTOM LINE IS THAT FINANCIAL PLANNING IS A COMPLEX DISCIPLINE THAT INCLUDES SEVERAL OTHER DISCIPLINES LIKE  RETIREMENT PLANNING , TAX PLANNING , ASSET ACQUISITIONS ETC .

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