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Importance of Financial Planning
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.
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.
3.
Security
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.
6.
Monitoring
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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