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