| What exactly is financial planning, and why | | | | will usually lead us to desire a particular |
| is it so important? | | | | set of goals. |
| | | | |
| Financial planning is the process of | | | | Financial planners often break down our life |
| determining how to manage money, investing, | | | | cycles into distinct phases. Which phase we |
| present and future financial goals, and the | | | | are in is often determined by age but will |
| strategy that should be undertaken to obtain | | | | also be dictated by how much risk we are |
| them. | | | | willing to assume. |
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| Because our goals and desires change as we | | | | Younger people are most often described as |
| do, financial planning and investing is a | | | | being in an accumulation phase. Their |
| task that is never finished. | | | | earnings have not yet hit their peak, but at |
| | | | the same time they are striving to obtain |
| How we are financially able to reach these | | | | both hard and soft assets. |
| goals, and the risk we are willing to take to | | | | |
| get there, necessarily means that any | | | | Examples here include saving for a new home |
| financial plan must be specifically tailored | | | | or a child's education. Risk assumed here |
| for an individual or family. | | | | will be tempered by the time constraints of |
| | | | these goals as well as individual risk |
| Financial planning begins by taking into | | | | tolerance. In general, the longer the time |
| account each individual's assets and | | | | frame, the more investments in the aggressive |
| liabilities at that particular point in time. | | | | category may be considered. |
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| The asset category includes life insurance | | | | The other phases extend to middle age and |
| and monetary investments of all kinds, along | | | | beyond to retirement. Our middle age years |
| with physical assets such as a home, | | | | often find us at the peak of our earning |
| automobiles and other items. | | | | power, with many of our former goals |
| | | | satisfied. This will mean greater savings are |
| Liabilities may range from personal loans, | | | | possible, and as time progresses towards |
| credit card debt, and loans taken to obtain | | | | retirement, our tolerance for risk will |
| hard assets, such as mortgages. | | | | necessarily diminish. |
| | | | |
| Next is where sources of ongoing income and | | | | Financial planning takes all of this into |
| increases in hard asset wealth enter into the | | | | account and more. Other factors, including |
| equation. Income most usually is earned by | | | | planning for health care and other insurance |
| employment, but other sources, such as | | | | needs, preparation for emergency |
| possible inheritances, must also be | | | | expenditures, tax and estate planning and the |
| considered. | | | | like will all be part of the strategy. |
| | | | |
| Increases in hard asset wealth, such as | | | | Unexpected windfalls may also enter into the |
| rising home prices, will be affected by | | | | picture. Saving for retirement becomes |
| general economic conditions as well as owner | | | | increasingly important as the time earned |
| enhancements. | | | | income will end draws nearer. |
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| From here, things get trickier, and this is | | | | All of these variables add to the importance |
| where the true planning begins! | | | | of financially planning across all stages of |
| | | | one's life. It is a concept that encompasses |
| Our particular stage in life -- whether we | | | | your total financial picture -- both in the |
| are young, old, or somewhere in the middle -- | | | | present and for the future. |