What Is a Financial Plan?
What Is a Financial Plan?
Coryanne Hicks Thu, September 23,
A financial plan is the heart of the financial advising process. In a way, it's the map for your clients' money, there to guide them financially from where they are today to where they want to be. Without a plan, investors are just paddling in an open sea, hoping their direction and speed will be enough to get them to their destination.
Given the financial plan's importance to the planning process, advisors and clients alike must understand what a financial plan is and the key elements that make a good plan.
What Is a Financial Plan?
A financial plan is a document that takes a holistic look at a client's entire financial picture and advises how to achieve financial goals, says Dan Keady, chief financial planning strategist at TIAA in Charlotte, North Carolina. It will incorporate your client's "needs, wants and wishes, while taking into account her comfort level with risk."
Financial plans are generally created using financial planning software and can incorporate many facets of planning. For instance, the retirement plan element often includes an analysis showing the impacts of taking money from different accounts, both qualified and nonqualified, for income and a comparison of the tax implications of each scenario, says Kelly Campbell, a certified financial planner and chairman and CEO of Campbell Wealth Management in Alexandria, Virginia.
"Many plans will also look at the required rate of return someone needs to achieve their goals," Campbell says. "This can give a good indication to someone as to how they should invest their portfolio."
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Creating a Financial Plan
A financial plan requires the right elements to rise to its full potential. To create a good financial plan, be sure to include the following elements:
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