Definition of Financial Planning
Financial Planning is the process of estimating the capital required and determining its competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise.
Objectives of Financial Planning
- Determining capital requirements- This will depend upon factors like cost of current and fixed assets, promotional expenses and long- range planning. Capital requirements have to be looked with both aspects: short- term and long- term requirements.
- Determining capital structure- The capital structure is the composition of capital, i.e., the relative kind and proportion of capital required in the business. This includes decisions of debt- equity ratio- both short-term and long- term.
- Framing financial policies with regards to cash control, lending, borrowings, etc.
- A finance manager ensures that the scarce financial resources are maximally utilized in the best possible mannerat least cost in order to get maximum returns on investment.
Importance of Financial Planning
- Adequate funds have to be ensured.
- Financial Planning helps in ensuring a reasonable balance between outflow and inflow of funds so that stability is maintained.
- Financial Planning ensures that the suppliers of funds are easily investing in companies which exercise financial planning.
- Financial Planning helps in making growth and expansion programmes which helps in long-run survival of the company.
- Financial Planning reduces uncertainties with regard to changing market trends which can be faced easily through enough funds.
- Financial Planning helps in reducing the uncertainties which can be a hindrance to growth of the company. This helps in ensuring stability and profitability in concern.
Traits of your best financial planners:
- Credibility and qualification: Certifications from Amfi and Irda are essentially a licence to sell a certain financial product, while a certified financial planner, or a CFP, is a qualified adviser. It is important to distinguish the two. Ask for references and check with existing clients to authenticate his advisory status.
- Business model and size: What is the source of his income? Is financial planning his profession or a part-time source of income? If he suggests a product, you have the right to enquire if he gets a commission on the sale. You need to be wary if the adviser gets cagey about disclosing details.
- Planning, not selling: Scrutinise if his advice is a sales pitch or a financial plan. An adviser recommending a product without asking about your financial goals is major warning signal. Pushing a product without being able to tell you why it suits you better than other similar products is another sign.
- Portfolio management: A financial plan should be re-evaluated periodically. Even so, it is essentially long-term planning. So, frequent churn of a portfolio, especially longterm investments such as insurance and mutual funds, is a definite warning. There must a reason to change an investment plan.
Some of the free financial planning services:
1. Sign up with a robo-adviser
A number of online tools now offer various forms of financial advice—in some cases a substantial portion of that advice is free. Some so-called robo-advisers manage your investment portfolio for you, usually including guidance on the best investments to meet your goals, automated rebalancing and tax-loss harvesting. They also delve into retirement planning and advice on reaching short- and long-term financial goals.
- Meet with a financial planner
Every year, a group of nonprofit organizations which manages the certified financial planner designation, including the CFP Board of Standard, the Foundation for Financial Planning and the Financial Planning Association, host a “financial planning day,” where anyone can meet with a financial planner.
3.Visit your retirement plan or brokerage website
Sixty percent of employers who offer a defined-contribution plans offer online guidance and 53% of plans have online advice, according to a survey in 2015 by consulting firm Aon Hewitt. If you’re investing through an independent brokerage, take a look at the portfolio management tools offered online.
- Look for local financial-services programs
There are numerous community-based programs nationwide that offer various forms of financial advice for free. Do an online search for your local Financial Planning Association chapter to see if there’s a program near you.
- Read reputable sources
Whether or not you get advice for free or pay for it, doing your own research on products and strategies can help you be a better judge of whether the advice is right for you. There are plenty of reputable online resources.