World is full of uncertainties and can happen anytime in one’s life. Uncertainties could happen financially, physically and could be in other forms. To mitigate the financial uncertainties Financial Planning comes into play.
What is Financial Planning?
Financial Planning refers to the development of Financial blueprint for a person’s financial security. The main motive of Financial Planning is to help a person to achieve his/her life goals.
A person has some goals in he/she wants to achieve in their lifetime and these goals are classified into 2. They are:
1. Long Term Goals- For e.g. Children higher education, Retirement planning
2. Short Term Goals- For e.g. Family vacation, Buying of house
Each of these goals are achieved only when Finances of a person is carefully planned.
Importance of Financial Planning
There are several advantages of having a proper financial plan. They are discussed below:
1. It boosts savings:
One can manage savings without having a proper financial plan, but there could be inefficiencies. When there is a proper plan one can have better insights on their income and expenses. One can track what costs can be avoided. Financial planning will help in boosting ones saving in both long and short term.
2. Emergency Preparedness
Financial planning helps during periods of emergencies. Emergencies could include loss of job, family emergency or health emergency. The emergency funds will help a person to meet his/her expenses during the periods of emergencies.
Financial planning involves securing one’s interests and family. This is possible by insurance coverage and policies. It helps in maintaining peace of mind.
4. Better standard of living
Financial planning will help one person to enjoy good lifestyle without sacrificing his desires because the person has finances carefully planned.
5. Retirement Security
One cannot work forever in his/her lifetime because at some point of time he/she will retire, hence financial plan will help secure finances for his/her future.
Financial Adviser and its role in Financial Planning
Financial adviser is a qualified and trained investment professional who helps individuals or organizations to meet their long-term financial goals and objectives. The main role of Adviser is to consult their clients to analyze their goals and finding suitable investments to their portfolio and understanding the risk tolerance of their clients.
Roles of Financial Advisor:
· Analyze the client Financial status.
· Suggesting Financial opportunities such as investments and insurance.
· Prepare budget and plans for clients.
· Alteration of financial plan as per the changing needs of the clients.
· Assist the clients in planning out their transactions.
· Assist choosing the clients right financial services.
Steps in Financial Planning
These steps are carried out by Financial advisor. Following are the steps involved;
1. Assessment of Financial Situation
In this step the Financial advisor will ask the client about the current financial status and the advisor will seek to understand the needs of the clients and may outline some strategies.
2. Development of Financial Goals
In this step the advisor will seek to understand the needs of his/her client and set long or short-term goals.
3. Identification of strategies
The advisor will develop strategies based on the needs and the goals of the clients. Depending on the requirements stated by the clients, the advisor assesses the budget, cash flow requirements, taxation, insurance and investments to reach at potential strategies.
4. Development of plan
In this step the advisor will display potential strategies in form of statement of advise or SOA as per the requirement of the clients.
5. Implementation of proposed plan
In this step the client will choose the best strategy and the advisor will start applying for investments and other financial products as mentioned in the proposed plan.
The advisor will carry out the plan as usual for a certain fee and will monitor whether the plan is working out as it should.
Blog written by AbdulRahman, Intern, Barakah Finserve LLP
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