What Is A Personalized Financial Plan?
What Is Personal Financial Planning?
Certified Financial Planners (CFP) often offer a variety of financial planning services for their clients. For clients who want to take charge of their personal finances, having professional financial advice that goes beyond just simple budgeting can be extremely valuable.
A personal financial plan typically includes creating a budget, saving for the future, paying off debts, and investing—all done to achieve your client’s short-term and long-term goals. Additionally, a financial plan should also include strategies to manage debts and anticipate unexpected emergencies.
In this article, we’re going to discuss the personal financial planning process, how to develop one, and how a financial advisor like you can use your expertise to help clients achieve their financial goals.
What Are the Steps of Personal Financial Planning?
Assess the Current Financial Situation
Like a continuation of your first discovery meeting, the first step to creating a solid financial plan is understanding your client's current financial situation. This includes reviewing their income, expenses, assets, and liabilities.
By thoroughly analyzing this information, you can gain a clear picture of their financial life, such as their net worth, cash flow, risk tolerance, and debt-to-income ratio.
Additionally, this process helps identify any areas of concern that need to be addressed in the financial plan.
Establish and Prioritize Personal Financial Goals
The next step is to identify your client’s goals and help them prioritize. Are they looking to build an emergency fund for unexpected medical bills, hoping to retire early, or would like to prepare for their child’s college tuition?
Goals can also include areas of concern identified during your assessment of your client’s financial situation.
As a financial advisor, you need to help clients articulate their financial goals in a way that is specific and measurable. You also need to make sure that the goals are achievable and realistic, given your client’s current financial situation and the time frame in which they want to achieve them.
Create a Budget
Having a budget helps your client understand where they get their money from and where it’s going. This is especially handy to identify areas where they’re overspending so they can cut out unnecessary expenses.
Financial planners can help clients create a spending plan to allocate their money more effectively and achieve their ideal financial future.
The key to budgeting is how to make these allocations usable for clients. Creating a budget that aligns with your client’s priorities and lifestyle will help make your financial plan more feasible.
Make sure that you’re consulting your clients when you’re creating the budget to understand how you can make it the most helpful for them.
Analyze the Client’s Current Course of Action
This step involves reviewing the financial decisions and actions your clients are currently taking and how they align with their overall financial goals.
It’s also important to understand what their current financial habits and behaviors look like, since that may affect their financial situation. Analyzing this behavior can reveal any potential financial risks or opportunities that the client might not be aware of.
For example, you might find that your client spends more than they earn, or they may be over-investing in a particular stock. As a financial advisor, you can help them identify areas of concern and offer your recommendations, such as offering to create a budget or help them adjust their investment portfolio so it doesn’t hinder their journey to achieve their financial goals.
Finding these gaps are part of what makes your expertise so valuable. You can use Asset-Map’s visual maps to see an overview of your client’s assets and ensure you don’t overlook anything during this process.
Manage Debt and Plan for Taxes
High levels of debt can increase the risk of a default, which will impact your client’s credit card score and potentially affect their overall financial well-being. It may also impede their ability to save and invest, making it more difficult for them to achieve their financial goals. You can help your clients manage their debts by suggesting financial strategies such as debt consolidation and creating a debt repayment plan.
Likewise, taxes can have a significant impact on your client’s financial situation. Different financial decisions carry different tax implications with them. Yet not everyone knows the ins and outs of it. As a financial advisor, it’s your responsibility to keep up with the laws and help your clients minimize the amount of taxes they owe.
Build an Emergency Fund
Life is full of surprises. Sometimes, those surprises can cost you a lot of money.
Having an emergency fund set up helps you manage surprise costs and makes sure you can stay afloat.
If your client doesn’t have one, it’s highly recommended to help them build one.
If they do have one, make sure to check it’s sufficient and that they’re not dipping into it unless it’s truly an emergency.
When helping your client build an emergency fund, there are a few things to consider, such as:
Setting a savings goal. The rule of thumb is to have 3-6 months' worth of living expenses saved in an emergency fund.
Creating a plan to save. For example, setting up automatic transfers or finding ways to reduce their expenses.
Choosing the right type of account. Recommend an account that is easily accessible in case of emergencies, but not so easy to dip into, such as a money market account or a high-yield savings account.
Protect with Insurance
Along with emergency funds, your client should be protected with insurance. Insurance is a risk management tool that helps protect your client’s assets and financial well-being when something unexpected happens to them or their loved ones. A few common types of insurance are life insurance, health care, home insurance, and long-term care insurance.
Having the appropriate insurance policies in place can reduce the financial burden your client will have to shoulder, help them stay on track with their goal, and help them sleep better at night.
There are many kinds of insurance, but the most important thing to remember as a financial planner is that you need to consider your client’s specific needs and budget. This can be a complicated topic—it’s important to help your clients understand what they’re buying and why it’s necessary.
Plan for Retirement
Helping your client prepare for retirement is an important aspect of a personal financial plan. Retirement planning involves helping clients set concrete goals for their retirement, such as determining when they want to retire, what their lifestyle after retirement will be like, and how much money they will need to save. You’ll also need an overview of their pension and expenditures during retirement if you want to have an accurate plan.
Retirement planning also includes analyzing different retirement savings options, such as 401(k)s, IRAs, and other retirement accounts. As a financial advisor, you can help your clients understand the benefits and drawbacks of different savings options and recommend strategies to maximize their savings and income during retirement.
At this point, you should be able to work with wealth management professionals to make sure that your clients can amass more money to reach their retirement goals.
Create an Estate Plan
Estate planning is often considered an extension of retirement planning.
It helps your clients secure their assets after retirement and ensure that they’re used to meet their financial needs and goals, both during their lifetime and after their death.
Estate planning includes creating legal documents such as a will, trust, or power of attorney. While it’s often closely associated with the distribution of the client’s assets after their passing, an estate plan can also provide a steady income stream during your clients’ retirement years.
Estate planning also includes strategies to minimize the impact of taxes and probate fees on asset distribution. By creating an estate plan, you’re ensuring that your client’s loved ones get as much as they can in the event of their passing.
Let Asset-Map Help In Your Client’s Personal Financial Planning
As the name suggests, personal financial planning is the process of managing an individual’s money to achieve their financial goals. This scope can also extend to families since they’re often a big part of someone’s life.
Personal financial planning can be broken down into nine components:
Assessing your client’s current financial situation
Establishing and prioritizing your client’s financial goals
Creating a budget
Analyzing the current course of action
Managing debts and planning for taxes
Building an emergency fund
Protecting your client’s assets with insurance
Planning for retirement
Creating an estate plan
Beyond these components, you should also check in with your clients periodically to see if there are any life changes that can potentially derail their financial plans.
Use Asset-Map to streamline your processes and allow you to focus on the big picture.
Asset-Map helps financial planners provide an excellent experience for their clients—without sacrificing the quality of their work.
Schedule your demo today to see how Asset-Map improves your client’s experience to make you their go-to financial planner.