Financial Planning - The Process

	The Financial Planning Process

	Step1 - Gathering Information Gather all relevant financial data to prepare your personal financial statements. The statements are: - The balance sheet, a measurement of financial net worth (not your self-worth). This takes a look at your assets (what you own) and liabilities (what you owe) to calculate your net worth (the difference between assets and liabilities); and - The income and expenditures statement is a measurement of your financial performance. It takes a look at the inflows (what you bring in) and outflows (what you pay out) to determine cash flow (what is left). When escalating outflows, remember what to factor in the amount put aside for savings and investments. You should always pay yourself first and take the money and invest it so that it becomes an asset. If you do not put aside money for your savings and investments first, there will be nothing left at the end of the day. These financial statements show where you are now, and helps you draw up a budget. The budget is the glue between the financial statements and your financial plan. It helps you monitor and control income and expenses on a monthly basis. Step 2 - Identifying objectives Set your objectives, then fit the objectives in the context of the areas of production, accumulation and distribution in a financial plan. Protection provides security against situations such as premature or untimely death, disability income losses, medical care expenses, property and liability losses. Accumulation would be the investment portion of the plan. It would encompass areas like building an emergency fund (typically three to six months of family income), and developing an investment portfolio for various reasons, including consumption, children's education, retirement, and creation of wealth for heirs. In this area, risk-return profiles and asset allocation decisions come into consideration. Distribution basically looks at planning for your heirs. It deals with the concept of estate planning, which covers wills, trusts, tax laws, insurance, investments and accounting. There are basically two methods of transfer; during your lifetime or at death. Step 3-Analysing your present situation The third step helps you consider the alternatives that are open to you in the three areas of protection, accumulation and distribution, that is tools such as stocks, bonds, mutual funds, annuities, insurance, real estate and trusts. Step 4 - Development of the plan At this stage of development an implementation of the plan, you would need to consult specialists in the different areas of personal finance. Among the specialists you would probably need to consult include lawyers, accountants, bankers, financial planners, insurance agents, investment advisors and trust officers. Step 5 - Reviewing the plan A financial plan should be ongoing and dynamic. There is a need to review the plan and adjust your objectives whenever there is a change in your circumstances and/or environment. They include changes in economic conditions, changes in family situation (birth, divorce, death), and changes in financial situation (promotion, lay-off). Go back to the first step and run through the whole process again when you do your review. *The above was excerpted from a presentation on financial planning made by attorney-at-law and certified financial planner John Jue, at a seminar entitled Reaping Financial Benefits in the New Millennium. The seminar was organized by BHLB Pacific Trust Management Bhd and held in mid-June 1999.

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