Financial Planning Process

Many Investors are literally afraid to interact with a qualified Financial Planner simply because they do not understand the process. In this article, we will help you understand the financial planning process and be properly prepared to work with financial professionals such as estate planning attorneys and tax and business planning accountants. These are the Professionals you will need during your life. They prepare proper legal documents such as business succession plans, wills and varietal trusts. Once you have read the article and filled out the referenced forms, you will be able to have an enriching conversation with your Financial Planner.

The Financial Planning Process – What YOU Should Know

There are Seven Steps to the financial planning process. This article examines those seven steps and introduces the financial planning tools that can help you get organized.

Step 1. Complete a Financial Document Checklist and a Personal Financial Planning Questionnaire

The financial planning process begins by committing to getting organized and having a financial checklist of documents needed to assess your current financial situation. This financial checklist will help you examine your assets, liabilities, income, spouse’s income, insurance, taxes, investments, retirement plans and estate plans. Two years of tax returns, bank and brokerage statements, wills, trusts, insurance policies are examples of necessary documents to collect.

Most financial planners would also have you fill out a personal financial planning questionnaire which allows them to gather your general information as well as your spouses and dependents including children and grandchildren, employment situation for you and your spouse, a list of advisors such as an attorney, insurance agent, stockbroker, and a personal cash flow statement and a personal balance sheet.

Step 2. Prepare a Personal Cash Flow Statement and a Personal Balance Sheet Spreadsheet

The financial planning questionnaire contains information on your income and expenses and net worth. The personal cash flow statement lists cash inflows and outflows to determine if the net cash flow is positive or negative. A negative cash flow means cutting back on wants over needs. The personal balance sheet lists assets, liabilities and net worth. Assets include account balances in checking accounts, savings accounts, money market accounts and brokerage accounts. Liabilities include loans, mortgages and credit card balances. Net worth is the difference between assets and liabilities. Track how your investments are performing so you can easily see if you are meeting your growth goals.

Step 3. Prepare a Budget

If you do not know where your money is going, your debt-to-income ratio and your spending habits, it will be difficult to find extra cash to use towards your major financial goals. Use the Online Trading Academy Budget Calculator to examine your current spending.

Step 4. State Financial Goals

The next step is to write down realistic financial and personal goals such as saving for higher education for children, a dream vacation or retirement planning.

The use of financial calculators will help you to prepare for your long-term goals such as the Online Trading Academy Retirement Planner

Step 5. Prioritize the Goals

Determine how much time and money is available to devote to the most immediate goals and estimate how much must be saved each month to achieve each goal. Set up a pay yourself first transfer from a checking account to a savings account for the most immediate goals. For longer term goals use deductions from your paycheck so the savings becomes automatic. The rule of 72 can be used to calculate how long it takes to double your money at different rates of interest. Divide the time frame into 72. For example, at 6% it will take 12 years to double your money.

Step 6. Prepare Your Financial Plan

If you worked with a financial planner, that person would feed your information into a software program to produce a comprehensive financial plan document. Typically, this document will be about 70 pages in length. It will include many aspects of your life and how to run it efficiently.

Step 7. Review the Plan

At least once per year, review your plan to make sure you are on track and make any necessary adjustments to the plan. Review important changes to tax laws as they apply to estate plans and shop around for insurance to see if you can save additional money.

With this information, you are well armed to speak frankly with a financial planner and be a part of your own financial solution.