Financial Planning And Investment Planning

Financial Planning is the process of meeting one’s life goals through the proper management of personal finances.

Sound financial planning involves 6 steps :

1.Establishing short, medium and long term life goals.

2.Tabulating assets and liabilities.

3. An evaluation of the current financial position to assess the distance to goal achievement.

4.Developing a plan that shows the way for achieving different goals

5.Implementing this  financial plan

6.Monitoring and reviewing this financial plan at least yearly and making adjustments when needed.

The financial planning process forces a person to be aware of their current income and future prospects vs needs and wants, current and future expenses factoring in inflation, assets, liabilities, contingency fund and insurance plans, tax implications of their financial and lifestyle choices and estate planning.

Investment Planning involves determining the optimum investment and asset allocation strategies based on the time horizon, risk profile and financial goals to be achieved by the person, given their income and current net-worth.

Investment planning involves taking the life goals of the person and translating them into financial goals. Next the investment objective to achieve these financial goals– ‘income’, ‘growth’ or just capital protection is determined. Then the ideal asset allocation , diversification of investments and asset allocation strategy given the person’s risk profile and the time horizon available for investments to grow to achieve financial goals are determined.

Going through the investment planning process gives a person clarity on how much to invest either in a lump-sum or regularly to achieve each of their life goals.

The 2 terms financial planning and investment planning are quite often used interchangeably, by the media and financial planning industry. This is because their bread and butter comes from getting you to buy various financial products or on advising you on the best in class products round. However, quite a few people are covered by various benefits like say the Central Government Health Scheme that hardly any advisor bothers to study or advise on. To overlook assets a person already has, and committing to purchase something identical means that people are simply allowing others to increase their money worries and convince them to chase money that they may not need, at cost to something else like family time that they might really value more. Maximizing income, net worth, tax efficiency or building the largest fortune are not always every person’s primary goal, that they would like to single-mindedly pursue at cost to all else.

Everybody can benefit from financial planning, but be sure to live in the present, not let others convince you that living starts in the future. Before entering the investment planning mind-set be sure you really need to be sacrificing today for something else tomorrow.