Understanding Financial Planning

Steps Involved for Families When Getting Professional Money Advice

Jun 17, 2009

Data gathering, identifying financial goals and issues as well as preparing, implementing and reviewing financial plans are the steps involved in financial planning.

Unlike singles, couples with children have extra financial responsibilities. They have to manage their money well and plan for future finances such as family health insurance, childcare costs, children’s education, managing taxes and retirement planning.

While many households manage family finances well without any outside help, those who have sought advice from financial planners have been successful in planning and investing for their families’ future. In fact, according to research conducted by the Financial Planning Association (FPA), 90% of Australians who have used a financial planner have benefited from the experience.

Before choosing a registered or certified financial planner, an understanding of how financial planning works will help. Here are the six steps involved in when getting professional money planning advice.

Gather Financial Data

The process starts with the family’s financial data. At the first appointment with the financial advisor, information on income, assets, debts and money commitments will be collected. It is very much like a financial stocktake.

Identify Financial Goals

The second step is to identify the family’s short- and long-term financial goals. These may include income and asset levels that the family hopes to achieve in different time frames, future education costs, income protection, buying a new home, estate planning, retirement planning and planning for unforeseen events.

Identify Financial Issues

At this stage, the financial advisor will compare the real financial situation with the desired financial goals to develop the best strategy to achieve those goals. The family’s financial strengths and weaknesses will be looked at as well.

Prepare the Financial Plan

Based on the comparisons and discussions above, the financial planner will formulate an overall financial plan, called a Statement of Advice (SOA) tailored to the family’s needs. Very often, the client’s attitude towards risk will be taken into account before the advisor starts developing recommendations especially designed to achieve the desired financial goals.

Implement the Financial Strategy

Once all the recommendations in the money plan are agreed on, it’s time to implement the financial strategy. All necessary paperwork will be prepared and signed by both the financial planner and client.

Review the Financial Plan

Financial environment, government legislation, health issues and family circumstances are not static, hence the need to review and revise the financial plan from time to time to keep it updated. There should be on-going communication between planner and family involved to check the progress in achieving the financial goals, track existing investments, discuss new investment opportunities and talk about the possibility of revising the entire plan.

A financial advisor’s job is to understand a family’s financial situation and helps them develop a financial plan to meet their financial goals. The processes involved in drawing out the strategy include gathering the family’s financial data, identifying the financial goals and issues, preparing the financial plan, implementing it and reviewing it on a regular basis.

Drury, Barbara. Personal Finance for Dummies. Queensland: Wiley Publishing Australia, 2002.

The copyright of the article Understanding Financial Planning in Family Finances is owned by Wei Yin Wong. Permission to republish Understanding Financial Planning in print or online must be granted by the author in writing.