The Three Steps to Financial Planning

If you want to attain financial independence, then you will want to seek the help of a financial planner. This expert will help you polish out your goals simply by identifying your resources, comparing them with your goals and then creating a path for you to follow.

In a nutshell, those are the three steps to financial planning, summarized. To further understand the process (and to convince you to seek out the assistance of these experts), let us look at each of the three steps in detail.

Interview Phase

This is, conversely, the most extensive phase in the entire process. In here, you and the financial planner are virtually getting to know each other. The planner gives you his or her credentials, and they will inform you how it is, to your best interest, that they can help you out in your quest for financial independence.

However, in this phase, it is you who will be doing most of the talking. Like a doctor checking out a patient, a financial planner will drill down to your last bit of information regarding your financial accounts. Their goal, at this point, is to identify your resources – what funds have you invested in, how much money do you have in excess to invest, and what do you plan to do?

This is also a good time for you to tell your financial planner/assistant what your risk tolerance is. There are three types of tolerance, and this information is crucial when it comes to choosing what type of financial instrument you will be investing in, in the future. It’s best to err in the side of caution, after all.

Planning

The second part is where the planner (and yourself) identify the investments that you make based on the information that you have provided them in the interview phase

We’ve mentioned the importance of identifying your risk appetite or tolerance early on in the interview phase. Using this information, the planner will present to you a portfolio of stocks grouped according to their risk factor – basically, you can choose between the following instruments: high yield/high risk, medium risk-steady yield, and low risk/low yield investments.

The planner will also come up with a calendar of activities for you. This calendar details what you will need to accomplish for this month, as well as for the next few months. The calendar is basically a breakdown of your financial independence goals, and serves to guide you to where you want to go.

Implementation

After all those interviews and planning, it’s time to implement your financial management plan!

Financial planning is actually very reactive and progressive. While you implement your financial plan, your planner will be working closely with you to monitor your results and to make adjustments to your planning as necessary. Coaching is also necessary to remove what motorcycle riders call the “survival reactions” – in investing, it means the emotional reactions like fear or greed that leads you to make bad calls with your investments.

Investing is exciting, and it’s even more exciting (not to mention fruitful) if you work hand-in-hand with a financial planner.

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