6 Steps – In Financial Planning Explained

6 Steps are there in the Financial Planning process.

Sebi Registered Investment Advisers will tfollow this entire process for their clients.

Individual Clients also can follow this process without the help of Investment Advisor guidance.

6 steps in the Financial Planning process are…

Financial Planning Board has designed these steps for Certified Financial Planners.

Every Planner (Investment Adviser) should learn and follow these steps for serving his clients in a better way.

  • 1. Establishing Client Planner Relationship
  • 2. Gathering Data
  • 3. Analyzing the Data
  • 4. Developing the Plan
  • 5. Implementing the Plan
  • 6. Monitor the Plan.

Step 1) Client Planner Relationship…

In this step, Investment Adviser ( Certified Financial Planner) will introduce himself to the client.

In addition, The adviser will try to know about the client’s name, occupation, how he has approached the adviser, which purpose that the client approached, etc.

The Adviser may ask the following questions too…

what are your strengths and weaknesses?

What is your feeling about the stock market?

How you are planning to save enough for your retirement?

Do You know How to do budgeting?

Step 2 ) Gathering the relevant Data from the client…

Gathering the relevant data from the client is an important step.

The data is like years left for your retirement 15 or 20 or 25 years? What is your risk tolerance?

Do you have existing saved money for your retirement?

are you having any life insurance?

Do you have children?

Have you written a will? etc

Step 3) Analyzing the Data…

After gathering the data from the client, the planner will analyze the data.

If the client has 30 years to retire in the second step and already saved 3 lakh rupees for the retirement, then this data is useful for the client to create the financial plan.

As the client already has 3 lakh invested in the bank, the client may need to invest Rs.15,000  per month for his retirement unlike Rs.20,000 per month ( in case he has not saved 3 lakh earlier).

In addition, If the client has huge debt and dependants and has no or low life insurance.

The client will be having some goals.

Here, the planner will ask the client to divide these into higher priority, medium priority, low priority goals.

This way, the planner will analyze the data of the client.

For analyzing the data the Adviser will use some assumptions like pre and post-retirement inflation etc.

The planner uses assumptions like inflation, return on investment and tools like the cash flow statement of the client, etc.

In addition, The planner will get an idea in this step, whether the client can achieve all financial goals ( high to low) or only few financial goals.

Example of high priority goals is retirement, child graduation, and house.

Medium and Low priority Examples are a domestic and international trip, Car, and a luxurious house, etc.

Step 4) Development of the plan…

After gathering the data and analyzing it, the Investment Adviser ( planner) will start developing the plan for the client.

Let’s say in step 3) you fall short of  1 crore for your retirement, and you are investing in a balanced portfolio.

But your goal horizon is many years away.

The planner may advise you to invest aggressively in order to get a higher return so that you will achieve your financial goal.

In addition, If you are not willing to take the risk, then the planner will ask you to increase the investment so that you will achieve your financial goal.

Moreover, the Investment Adviser will advise the client to have enough life insurance in order to take care of the Dependants and the liabilities in his absence.

In this step, the Investment Adviser will use some assumptions on the expected return, inflation, etc.

Step 5) Implementing the Plan…

Implementation of the plan is nothing but that you have to follow the advice given by the Investment Adviser so that the plan will work for you.

But it is not that easy.

I found many people to struggle to implement the plan.

You have to discipline and should have the desire to succeed in achieving your financial goals.

Successful investors do not need high-level investment in lakhs and crores.

You can start your investments with as little Rs.100 also.

I have seen people having their standard of living at a very high level which is not good for them.

In addition, after taking financial planning, if the planner says that the client has to decrease his standard of living, then the client has to decrease it in order to save money for some of his important future financial goals.

But most people fail in doing so.

The solution for this is when you get the job, If you take the financial plan immediately,  to what extent you can increase your standard of living.

In addition, it will be difficult to decrease the standard of living after some years you got the job.

Follow 6 step financial planning
Follow 6 step financial planning

Step 6) Monitoring the plan…

Life will not be the same every day.

Financial life also will change from time to time.

Like, New child arrival, job loss or change or Disability to you or death in the family, divorce, share market fall, recession, and many more…

In such scenarios, you have to do changes to your financial planning.

7th step is also there according to the Financial Planning Board. But the adviser including this in the 6th step.

The seventh step is updating the financial plan.

As monitoring the plan and updating the plan are quite similar, Investment Advisers are mixing them together.

Conclusion about 6 step Financial Planning process…

This process involves insurance planning, tax planning, retirement planning, estate planning, investment, etc also.

You can do this entire process on your own or you can hire a Sebi Registered Investment Adviser for you.

Whether you do it yourself or with the help of an Investment Adviser, you have to follow all the 6 steps of Financial Planning in order to succeed in achieving your financial goals.

The source for this article is https://india.fpsb.org/






























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