What does financial planning actually entail? The question is more complex than it seems.
How you define financial planning may have a lot to do with what you want out of it. In fact, there are as many outcomes from financial planning as there are financial profiles. Consisting of a full spectrum of financial tools and expertise, it's an approach to personal finance that you can hardly do without.
Think of it this way: in the same way your life needs a plan, so does your financial life. It's how you get where you want to be. If you feel as if you're drifting and simply working to pay the bills, financial planning might help you aim higher and set some goals so you get more out of your money.
Financial Planning is for Everyone
Whether you make a little or a lot, you can benefit from financial planning. Likewise, whether you take a DIY approach or you call in a professional to give you additional expertise, the simple act of taking a "big-picture" view of your finances is going to help immensely.
Everyone can benefit because everyone has goals, whether they realize it or not. Maybe you want to save for retirement, or maybe you need to whittle down your credit card debt. Want to buy a home? Maybe you simply want to build up your cash reserves or perhaps figure out where all your money is going. Capturing all the financial information in your life in a snapshot is the first step towards achieving those goals. Only by seeing everything can you or your financial advisor begin to map out a plan.
But taking a step back and viewing your financial life from a larger perspective is only the beginning. Below, you'll see what types of activities and outcomes you can expect when you hire a financial planner to help you out.
Financial Planning is a Process
An appointment with a financial planner begins with a consultation, but what comes out of that initial meeting is by no means conclusive. In other words, you won't walk away with a set plan for life.
You will, however, come away with a deeper understanding of where you lie with your finances. Are you saving enough? Can you realistically expect to buy a new car this year? Should you buy life insurance?
Through sessions with a financial planner you'll learn that budgeting, goal-setting, and money management are all part of the blueprint your advisor sets for you.
You'll Have to Reassess at Some Point
You'll soon have a workable blueprint for how to manage your money towards your end goals. Then, after time has passed, it will be time to take an assessment on how well you're doing in following the plan your advisor has set out for you.
According to how well you're doing on those plans, and what sort of life changes you've experienced in the meantime, adjustments can be made. In this way, financial planning is a process, not a one-time consultation.
Financial Planning is a Lifelong Tool
The beauty of financial planning is that it's fluid, changing to keep up with the natural chaos that life brings and the financial milestones you encounter along the way. New phases in life may call for new goals or new strategies.
Strategies may involve some or all of the following elements:
Finally, financial planning is to help you reach your goals in life. They aren't always monetary goals, either. State your goals, and the financial planning process works itself around serving those goals. Whether it's going back to school, spending more time with your family, retiring comfortably or growing your wealth, financial planning helps you get there.
Chris Hardy, CFP®, EA, ChFC®, CLU®, NTPI Fellow® is the Director of Planning and Investments at Paramount Investment Advisors, Inc., a fee-only wealth management firm located in the metro Atlanta suburb of Suwanee, Georgia. Chris specializes in providing clarity to his client’s financial vision through comprehensive and strategic wealth planning.
Chris and I became friends after meeting at an industry conference and I asked him to write a guest article for this site.