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