Financial planning is the process of assessing financial goals of an individual, taking an inventory of the money and other assets which the person has, determine life goals and then take necessary steps to achieve goals in the stipulated period. It is a method of quantifying a persons requirement in terms of money. It is the process of meeting life goals through the proper management of finances. Financial planning is a process that a person goes through to find out where they are now (financially), determine where they want to be in the future, and what they are going to do to get there. Financial Planning provides direction and meaning to persons financial decisions. It allows understanding of how each financial decision a person makes, affects the other areas of their finances. For example, buying a particular investment product might help to pay off mortgage faster or it might delay the retirement significantly. By viewing each financial decision as part of the whole, one can consider its short and long- term effects on their life goals. People can also adapt more easily to life changes and feel more secure that their goals are on track. In simple, Financial Planning is what a person does with their money. Individuals have been practicing financial planning for ages. Every individual who received money had to make a decision about the best way to use it. Typically, the decision was either spend it then or save it to spend later. Everyone had to make the same decision every time they receive money. Financial Planning is an advisory service provided by the finance industry. Although financial planning is not a new concept, it just needs to be conducted in organized manner. Financial Planner on other hand is a service provider which enables an individual to select proper product mix for achieving their goals. The major things to be considered in financial planning are time horizon to achieve life goals, identify risk tolerance of client, their liquidity need, the inflation. Keeping all this in mind financial planning is done with six step process. This are self assessment of client, identify personal goals and financial goals and objective, identify financial problems and opportunities, determining recommendations and alternative solutions, implementation of appropriate strategy to achieve goals and review and update plan periodically. A good financial plan includes Contingency planning, Risk Planning (insurance), Tax Planning, Retirement Planning and Investment and Saving optionStudy of various factorsThings to consider while doing financial planning are Time horizon and goals It is important to understand what the individuals goals are, and over what time period they want to achieve their goals. Some goals are short term goals, those that people want to achieve within a year. For such goals it is important to be conservative in ones approach and not take too much risk. For long term goals, however, one can afford to take more risk and use time to ones advantage. Risk tolerance Every individual should know what their capacity to take risk is. Some investments can be more risky than others. These will not be suitable for someone of a low risk profile, or for goals that require being conservative. Crucially, ones risk profile will change across their lifes stages. As a young person with no dependants or financial liabilities, one might be able to take lots of risk. However, if this young person gets married and has a child, the person will have dependants and higher fiscal responsibilities. So, the persons approach to risk and finances cannot be the same as it was when they were single.
