Home | Login | About Us | Contact Us | Downloads | Sitemap
Karvy Distribution Logo
Mutual Funds Fixed Deposits Bonds IPOs Financial Planning Tax Planning
About KFP
Services
Risk Profiler
Calculators
Best Practices
FAQs
Glossary


  Financial Planning

Financial Planning  
home > Financial Planning > Services > Financial Planning
logo   FINANCIAL PLANNING
   
bullet FUNDAMENTALS OF FINANCIAL PLANNING
  Financial planning is an ongoing process for an individual. It is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a home, saving for your child's education or planning for retirement. A person may start it at an early age and carry it forward through his life with changes to suit his changing goals and needs. Financial planning provides direction and meaning to your financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances. Financial Planning can take a "big picture" view of our financial situation and make financial planning recommendations that are right for us. The financial planning can look at all of our needs including budgeting and saving, taxes, investments, insurance and retirement planning. Financial Planning is very important to achieve your financial goals which take different faces in ones life. Financial goals can vary from buying a house to buying crockery, buying car to buying seat covers and also from planning for children's expenses to buying their uniform and stationery.
   
bullet Types of Financial Goals
  After the above discussion, the next most important element in financial planning is to understand the various types of financial goals and how to use them in practice.
   
bullet
Long-term goals
 
Long-term financial goals represent the long-term requirements of an individual. Long-term goals may extend beyond a period of six years. The time period should not be so long that the goals become unrealistic to achieve. It is possible that goals change over a period of time and thus need to be revised on a regular basis. The following table describes an individual's long-term goals:

Goal Priority Target Date Cost Estimate
Take a home loan
High
2006
Rs. 5,00,000
Investment in real estate
Medium
2008
Varies
Take a vacation in Venice
Medium
2007
Rs. 50,000
Hide
bullet
Short-term goals
 
Short-term goals are for a period of one year or less. They are immediate goals in the form of expenses in the current period, such as education expenses for a child newly admitted in nursery school. To attain long-term goals, it is essential to attain current short-term goals. The short-term goals also provide for the surplus required for savings, which are crucial for long-term goals. The following table provides a description of a person's short-term goals:

Goal Priority Target Date Cost Estimate
Buy school uniform for children
High
Dec., 2003
Rs.1,500
Buy a new cooking gas
High
Nov., 2003
Rs.2,000
Buy new seat cover for the car
Medium
Jan., 2004
Rs.1,500
Buy a new crockery
Low
Jan., 2004
Rs.1,500
Hide
bullet
Intermediate goals
 
Intermediate goals fill up the gap between the short-term and long-term goals. They are generally spread over a period of two to five years. The following table describes an individual's intermediate goals:

Goal Priority Target Date Cost Estimate
Repaying education loans
High
Dec., 2004
Rs.1,00,000
Take a week long vacation
Medium
June, 2004
Rs.8,000

It is always advisable to prioritize these goals on the basis of the urgency in fulfilling them. By doing so, an individual will be able to identify the goals that he/she has to concentrate on immediately and which of them can be deferred for some time.Hide

bullet
Importance of financial planning
 
Financial planning is very important for each and every body who earns. When it comes to money the question of managing them efficiently comes along. Financial planning is about efficiently managing ones finances. Every one has few goals or dreams in their lives, to fulfill them on time it is very important to manage your finances.

However it is by and large understood that financial planning is the Rich's shoes, but in fact it is all the more important for the middle income group. "It's not for the well-to-do; it's how you become well-to-do."

As India is a growing economy, the problem of understanding the various investment option is also growing. Also attached is the problem of understanding the risk return trade off is important. On these lines we can discuss these few importance of financial planning for any investor or for that matter saver.

  • Financial planning provides direction and meaning to your financial decisions.
  • It allows you to understand how each financial decision you make, affects other areas of your finances. For example, buying a particular investment product might help you pay off your debts faster or it might enhance your goal of buying a car by a year or two.
  • By viewing each financial decision as part of a whole, you can consider its short and long-term effects on your life goals.
  • You can also adapt more easily to life changes and feel more secure that your goals are on track.
  • Hide
bullet
Can you do your own financial planning?
 
Yes you can but if you have the required skills. Financial planning is very technical and conceptual process. Some personal finance software packages, magazines or self-help books can help you do your own financial planning. However, you may decide to seek help from a professional financial planner if:
  • You need expertise you don't possess in certain areas of your finances. For example, a planner can help you evaluate the level of risk in your investment portfolio or adjust your retirement plan due to changing family circumstances.
  • You want to get a professional opinion about the financial plan you developed for yourself.
  • You don't feel you have the time to spare to do your own financial planning.
  • You have an immediate need or unexpected life event such as a birth, inheritance or major illness.
  • You feel that a professional adviser could help you improve on how you are currently managing your finances.
  • You know that you need to improve your current financial situation but don't know where to start.
  • Hide
bullet
Steps in Financial Planning
 
However Financial Planning is a very specialized process. It is also governed by lots of bodies. There fore it follows a standard process as prescribed by the Financial Planning Board. The Financial Planning Process consists of the following six steps:

1. Establishing and defining the client-planner relationship.
The financial planner should clearly explain or document the services to be provided to you and define both his and your responsibilities. The planner should explain fully how he will be paid and by whom. You and the planner should agree on how long the professional relationship should last and on how decisions will be made.

2. Gathering client data, including goals.
The financial planner should ask for information about your financial situation. You and the planner should mutually define your personal and financial goals, understand your time frame for results and discuss, if relevant, how you feel about risk. The financial planner should gather all the necessary documents before giving you the advice you need.

3. Analyzing and evaluating your financial status.
The financial planner should analyze your information to assess your current situation and determine what you must do to meet your goals. Depending on what services you have asked for, this could include analyzing your assets, liabilities and cash flow, current insurance coverage, investments or tax strategies.

4. Developing and presenting financial planning recommendations and/or alternatives.
The financial planner should offer financial planning recommendations that address your goals, based on the information you provide. The planner should go over the recommendations with you to help you understand them so that you can make informed decisions. The planner should also listen to your concerns and revise the recommendations as appropriate.

5. Implementing the financial planning recommendations.
You and the planner should agree on how the recommendations will be carried out. The planner may carry out the recommendations or serve as your "coach," coordinating the whole process with you and other professionals such as attorneys or stockbrokers.

6. Monitoring the financial planning recommendations.
You and the planner should agree on who will monitor your progress towards your goals. If the planner is in charge of the process, she should report to you periodically to review your situation and adjust the recommendations, if needed, as your life changes.Hide


Basically Financial Planning has four important aspects which take care of the entire financial planning spectrum. They are following:






   
Karvy.com | About Us | Sitemap | Contact Us | Locate Us | Terms and Conditions | Disclaimer | * Best viewed in 1024 by 768 resolution *| © 2007 www.karvydistribution.com