The Power of Financial Planning

“Someone’s sitting in the shade today because someone planted a tree a long time ago.” (Warren Buffet)

As a financial life planner, my underlying assumption is that planning is a “good” thing. Planning is widely acknowledged to be a pre-requisite for business success. However, Benjamin Franklin’s advice that “by failing to prepare, you are preparing to fail” frequently falls on deaf ears in the personal environment.

This is usually, in my experience, because people feel they have neither the time nor the skills for personal financial planning; nor do they want to spend money on hiring a professional financial planner. And a few people I have met have such confidence in their ability to make and retain significant fortunes that personal financial planning is deemed unnecessary, even spineless.

So this article is about why financial life planning is important. I will share with you some of the current approaches to planning, show you how to plan in practice and highlight the outcomes.

To plan, or not to plan?

I am passionate about planning because it leads to success. I recall my first sales job in financial services, cold calling to make appointments to sell insurance. I had an excellent manager who made me plan my target market, pitch, call strategy, everything. The first call I made was spot on, leading to an appointment in minutes. I knew it was going to work, my manager knew, my colleagues knew. And it did.

So why should we plan our lives and money? In my view, for four reasons:

1. To develop a practical framework for running household finances

2. To achieve profound goals as fast as possible

3. To ensure long term financial security

4. To deal with life’s setbacks

Lets look at each of these in turn.

1. Financial framework

Many people today lack a financial framework or system. When it comes to expenses, the core of financial planning, we often enter a fantasy world. Even if families can give a reasonably accurate set of current financial statements (assets, liabilities, income, expenditure and estate), they are rarely able to project what those statements will look like ten years, or even five years into the future.

Financial planners will usually tell you that clients come to them for these reasons:

‘We are not fully in control of our finances’
‘I don’t understand money; all I feel around money is fear and anxiety’
‘We don’t know where we are now or where we will be in the future’
‘We seem unable to live the lifestyle we aspire to’
When families do achieve clarity it usually provides great relief, even if the picture does not look good. They at least know where they stand and can take appropriate action.

2. Goals

Unfortunately, we live in an era where wealth is frequently generated for its own sake, rather than as the means to live a fulfilled life. Money is used to make more money – it becomes a proxy for the ego, and financial decisions are often made to protect or massage our egos, not to support the achievement of our deepest life goals.

Life and money are deeply intertwined. Identification of clear life goals is essential to provide direction, and enables sound financial decisions to be made. So when asked to comment on an investment someone is considering, I always pose another question: “Will investing in this product enable you to achieve your goals more quickly and efficiently?” Very often the answer is that it won’t.

3. Long-term security

The impact of increasing longevity on family finances is profoundly important. The keys to addressing this are the Three Drivers of Financial Freedom: savings, compound interest and asset allocation. While saving implies a reduction in spending, and potentially the hijacking of those important and immediate life goals, financial life planning can help to resolve these difficult conflicts between the short and long term.

4. Dealing with the unexpected

Life will have kicked you in the teeth in the past and it will do so again in the future. Accept it, and plan for it. Life can throw a huge range of fastballs at us, from the irritating yet not too serious car breakdown to the death of a close family member. Put in place contingency plans centred around a Security Fund and insurance. No one likes insurance (though I have yet to meet a widow who complained her husband was over insured).


What you are really going to achieve from well-formulated goals and a structured, considered life and financial plan to achieve those goals can be clearly expressed in one word – freedom.

Freedom is a central theme of my work, so what exactly is it? True freedom comes from defining and setting boundaries and living a life dedicated to achieving your goals within those boundaries. Greater freedom comes from personal growth, the means by which we can expand our boundaries.

Lianne’s story illustrates this perfectly. A mother of two on a modest salary, Lianne had gone through a difficult divorce and when she first came to me for help, she was consoling herself with a compulsive spending habit.

However, her goals were to love, support and educate her children and to be a really good mother to them to compensate for the breakdown of the marriage. I worked with her to plan her boundaries. We established her life goals, tackled her spending and developed an annual spending plan.

One Monday morning she called me to talk about her weekend. She had taken the girls to London to see a concert and had done so without any feelings of guilt or anxiety over money. It had been in her plan. She had achieved her goal of bringing happiness and fun to her children. Within her boundaries she had achieved real freedom, to be there in the moment with her children, simply to be.

It’s the process that matters

Plans rarely survive contact with reality, to misquote Moltke. Reality for many of us can cause a change of direction. However, the process of planning is as much a benefit as the plan itself, often more so.

There are a number of planning processes around, often developed by professional bodies such as the Financial Planning Association or the Kinder Institute in the US or the Institute of Financial Planning in the UK. My own process is a six-stage process for called FUTURE:

Foundation: a full inventory and analysis of your life, including assumptions and an analysis of your risk profile
Utopia: establishing what you want to have, to do, to be
Transformation: identifying and dealing with the obstructions on the road to utopia
Utilisation of resources: establishing the best option for your existing resources
Roadmap: creating the plan to get you from where you are now to where you want to be
Execution: implementing and living the plan
Having developed a plan it is important that you continue to monitor and renew the plan each year. Planning is dynamic, a habit, not just a couple of sheets of paper to be drawn up then relegated to the bottom draw and forgotten.

The fruits of the process

We all in the financial community trust our processes, because we know they bring results, results that are more than just a written plan.

Initially you will develop a personal inventory of your life. This will include a detailed set of accurate financial statements comprising a schedule of assets, liabilities, income and expenditure, as well as data about yourself and the environments you inhabit.

Self-understanding builds on this base and by the time you are well into the process you should be able to articulate your deepest and most profound goals. In doing so, you will find yourself energised, focused and far sighted.

Finally, you will learn about money. If you are working with a coach or adviser you will have a raft of financial principles and products explained to you. If you are alone on this journey you will need to educate yourself, and there are plenty of resources out there to help.

What is the alternative to planning? Well, you can wing it; with a good deal of chutzpah, a hefty dose of confidence, a wing and a prayer and a bit of carpe diem you might well achieve great things, and get a real thrill and sense of achievement when you do. However, I do believe in the importance of living in the moment. The present is where we can really ‘be’. Crucially, financial life planning will actually help you to achieve this state by removing regrets for the past and fears of the future.

A well-structured plan will give you a thorough understanding of your situation and ensure you always have the right money in the right place at the right time to achieve your deepest life goals.

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Financial Planning – A Guide to Allocate Your Investments

Financial Planning is an important aspect in human life as it helps individuals set & achieve their long-term financial goals, through investments, tax planning, asset allocation, risk management & retirement planning. It means maximizing one’s wealth by investing in different asset classes, so as to capitalize on their unique risks, rewards & liquidity attributes. It is therefore, becomes necessary for an investor to identify their financial needs & goals, understand their investment choices & decide an appropriate mix of various investment choices. Financial planning is generally recommended to start early as possible as when a person starts earning, so that he/she can benefit from the compounding by the time they reach their retirement stage. Compounding means the computation of interest paid using the principal plus the previously earned interest. Each investor has different goals in life & in order to achieve that goal in a systematic & planned way, financial planning is necessary & for financial planning to make successful in the long -run, an investor should understand their available finances in different forms & how he/she can best utilize the available resources (finances) to achieve greater returns & within a time frame set by them.
Hence, in clear terms, financial planning can be defined as an exercise aimed at identifying all the financial needs of an individual, translating the needs into monetarily measurable goals at different times in the future, & planning the financial investments that will allow the individual to provide for & satisfy his/her future financial needs & achieve his/her life’s goals. The objective of financial planning is to ensure that the right amount of money is available in the right hands at the right point in the future to achieve an individual’s financial goals.
Financial Goals can be either:
 Buying a Home

 Providing for a child’s education & marriage or

 For retirement

These can be measured in monetary terms.
Personal financial needs are of two types – protection and investment. An
earning member providing for his family to have continued income after his
death is an example of protection need. Providing for the marriage expenses
of a daughter is an example of an Investment need.
Hence, Financial planner helps the customer to maximize his/her existing
financial resources by utilizing financial tools to achieve his/her financial goals.

Therefore, mathematically we can say:
Financial Planning: FR + FT = FG
FR = Financial Resources
FT = Financial Tools
FG = Financial Growth

About Financial Planner

A Financial Planner is someone who uses the financial planning process to
help another person determine how to meet his or her life goals. The key
function of a financial planner is to identify their financial planning needs,
their present priorities & the products that are more suitable to meet their
The financial planner normally possesses detailed knowledge of a wide range
of financial planning tools & products, but the planner’s major role is to help
clients choose the best products for each need.
The planner can take a ” big picture ” view of a client’s financial situation &
make financial planning recommendations that are right for the client.

The planner can look at all of client’s needs including budgeting & saving,
taxes. Investments, insurance & retirement planning or the planner may work
with his client on a single financial issue but within the context of his overall
situation. Therefore, planner is set apart from other financial advisors, like
tax advisors & insurance agents, who may have been trained to focus on a
particular area of a person’s financial life.
Basis for financial planning
Financial planners generally pursue “The Life Cycle Stage” for making a well-defined financial plan for their clients. As the need for each stage of life-cycle is different, thereby financial planner has to cautiously devise a well-suited financial plan for their clients so that they can meet their objectives successfully within a given level of time frame & resources. However, priorities will change as people grow older & their personal circumstances change.

The life-cycle of any individual can be typically sub-divided into the following stages:
 Childhood Stage
 Young Unmarried Stage
 Young Married Stage
 Young Married with Children Stage
 Married with older Children Stage
 Post-family/Pre-retirement Stage
 Retirement Stage

Steps to derive maximum benefits from a financial plan:
In order to derive maximum benefits from a financial plan, retail Investors should take the following steps into consideration:
1. They should know their goals properly & with a clear insight to achieve them.
2. They should have a clear estimate of the time frame from their own personal experiences & observations to achieve their goal.
3. They should not rely solely on what financial advisors, news reports says, but should do a thorough research of their own about the nature & potential of stocks’ generating returns that a particular scheme invests in.
4. They should not be drawn by emotional sentiments of the market.
5. They should not time the market for entry or exit. General rule says the best way to enter the market is during bearish phase.
6. They should try to analyze their risk-taking appetite while going for investments. If, facing problem, they can also take help from financial experts.
7. They should timely review their portfolio as & when market fluctuates or at the time of inflation.
8. They should be well-versed about financial statements of those companies time-to-time whose stocks they are preferring.
9. They should have a sufficient back-up of their additional financial resources at the time of losses, in case, if it happens.
10. They should diversify their holdings even through mutual funds as much as they can in order to minimize the risk.

Author Biodata: Shefali Sinha is an avid financial writer who helps

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