Personal financial planning process
- Assessment: A person's financial situation is assessed by compiling simplified versions of financial statements including balance sheets and income statements. A personal balance sheet lists the values of personal assets (e.g., car, house, clothes, stocks, bank account), along with personal liabilities (e.g., credit card debt, bank loan, mortgage). A personal income statement lists personal income and expenses.
- Goal setting: Having multiple goals is common, including a mix of short term and long term goals. For example, a long-term goal would be to "retire at age 65 with a personal net worth of $1,000,000," while a short-term goal would be to "save up for a new computer in the next month." Setting financial goals helps to direct financial planning. Goal setting is done with an objective to meet certain financial requirements.
- Creating a plan: The financial plan details how to accomplish the goals. It could include, for example, reducing unnecessary expenses, increasing the employment income, or investing in the stock market.
- Execution: Execution of a financial plan often requires discipline and perseverance. Many people obtain assistance from professionals such as accountants, financial planners, investment advisers and lawyers.
- Monitoring and reassessment: As time passes, the financial plan must be monitored for possible adjustments or reassessments.
What is financial planning?
AREAS OF FOCUS
The six key areas of personal financial planning, as suggested by the Financial Planning Standards Board are :
- Financial position
- Adequate protection
- Tax planning
- Investment and accumulation goals
- Retirement planning
- Estate planning