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What is financial planning? In the purest sense, financial planning is quite simply cash flow planning. It’s having the percise amount of cash you want at the right time you want it, in efforts to accomplish a specific financial goal. The steps taken to implement a financial plan are in response to these careful goals and potential rewards. For example, if a couple is currently retired and their only source of cash to maintain their lifestyle is a limited investments in their individual retirement accounts. Those investments will need to be structured more for current income and less for appreciation on the other hand, if the couple is comfortable, but they have more than enough assets to handle the personal financial needs for the rest of their lives. They may allocate more investments for growth in order to enhance their ultimate bequests to their children or to charity.
Financial planning can also be defined as 1.) creating order out of chaos 2.) a deliberate and continuing process by which a sufficient amount of capital is accumulated and conserved and adequate levels of income are attained to accomplish the financial and personal objectives of the client. 3.) The development and implementation of coordinated plans for the achievement of a client’s overall financial objectives 4.) income tax planning, retirement planning, estate planning, investments and asset allocation planning, and risk management planning.
There seems to be no single universally accepted definition of what financial planning is. That’s understandable since the planner’s role must be as different as the needs of the investors and their ability or willingness to pay for advice. No two people or problems will ever be exactly the same.
For many investors, the creation of a simple and workable system that will help them control their cash and pay their bills on time will be highly successful financial planning. However for others successful planning will involve the full-time efforts of a planner, staff and sophisticated computer and administrative support. Most planners will be working with clients whose need fall somewhere between the two extremes. The financial problems the majority of us face can be categorized by the letters L. I. V. E. S.
L – stands for lack of liquidity liquidity is the possession of sufficient cash and/or income to pay bills debts, taxes and other expenses on time and lack of liquidity is the inability to quickly turn invested capital into spendable cash without incurring unreasonable cost. This problem can result in a forced sale of assets at pennies on the dollar. For instance if a client must sell stocks and mutual funds shares in a down market, or if an executor must sell a valuable real estate portfolio to pay federal or state death taxes and administrative expenses, the buyer will offer to pay the lowest possible price for the most precious asset. This forced sale often becomes a fire sale, a loss ofprime growth or income producing assets at a fraction of their real value.
I – stands for in adequate resources insufficient capital or income in the event of death, disability at retirement or special needs, such as college or prep oratory school or to provide needed services for handicapped child.
I – stands for inflation. Inflation not enough has been done to inflation proofed the client portfolio. There are often crippling effects and impacts from inflation on the dollars ability to buy goods and services.
I – stands for him proper disposition of assets the client is leaving the wrong asset to the wrong person at the wrong time and in the wrong manner picture. For instance a client leaving a sports car to a 10-year-old child, or $100,000 cash out right to a 21-year-old college student.
V – The V stands for value value, not enough has been done to stabilize and maximize the financial security value of the clients business and other assets.
E – stands for excessive taxes excessive taxes add to the cost of investment and retard progress towards a client objectives.
S – stands for special needs clients have desires that go beyond mere quantifiable goals, psychological assurance and comfort should be part of the financial planning process. For example the client may want to provide additional levels of financial care for a spouse or children who are disabled or emotionally troubled.
No matter how you define financial planning we are all confronted with the need to determine whether their available resources are adequate to accomplish their financial goals and objectives.
The financial planning resources are one earned income parentheses salary, wages, business income( while still working full-time or part-time to accumulated investment assets three employer pension plans and Social Security benefits. The usual financial planning goals and objectives can be broadly categorized as one current lifestyle to children’s education three retirement funding for parental issues five estate planning six other special needs, such as a disabled child in addressing these goals. The client’s charitable desires often come into play. Some clients want to maximize the charitable giving during the lifetime other clients prefer to give less well their living butter did desirous to leave much of their estate to charities.
Up to this point I’ve covered a good deal financial planning lives which incorporate the financial problems most people run into only in their lifetime but on a day-to-day basis. I’ve also covered financial planning goals, objectives that everyone runs into in their lifetime and the resources that we have at our disposal to hopefully accumulate assets we need to accomplish our goals and/or the resources to mitigate any losses that would impede our efforts to reach those goals. Next week I’ll summarize quickly what I just covered up then get into what a financial planning or poor should cover of financial planning report should cover our needs. It should be everything you were looking for to feel confident and secure moving into the future college education to wish and financial planning, budgeting for the future is all scary and daunting task for me and if financial planning report should be used to control the anxious feeling and to enable individuals with the confidence they need to closely follow a financial plan.
“Generous gestures yield the most when that isn’t their purpose.”
A.J.Smith
