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Financial Planning 101

We can all agree that we live in extraordinary times, where none of us really know what is next? The COVID-19 pandemic has changed things so much so that planning for the future seems daunting. We may not be able to control the future, but we have control of what we do now. The small steps we take today can secure a good financial future for ourselves and our loved ones. Having a good financial plan is one of those steps.

What is Financial Planning?

Financial planning is a step by step process where an individual maximizes their existing financial resources (e.g. salary, rent income etc.) through the proper management of one's finances to achieve their financial goals and objectives. The Financial Planning Institute (FPI) of South Africa states that the process of financial planning consists of six steps which Advisers needs to consider and follow when engaging with you, these steps include:

Step 1: Establishing and defining your relationship

The first step is for the Adviser to inform you, the client, about the financial planning process, the services offered, and their skills and experience at your disposal for financial planning. Following the explanation of the services provided by the Adviser, you will then agree on your focus areas based on your needs. A written agreement needs to come out of this step.

Step 2: Collecting your financial information.

In this step you and your Adviser will then identify your personal and financial objectives, needs and priorities before making or implementing any recommendations. The Adviser will then collect enough information and documents about you, relevant to the discussion before making or implementing any recommendations.

Step 3: Analysis and assessment of your financial status.

The Adviser needs to analyse your information to gain an understanding of your financial situation. This includes assessing the strengths and weaknesses of your current financial situation and comparing them to the objectives, needs and priorities you and the Adviser have set.

Step 4: Financial planning recommendations

The Adviser then considers one or more strategies relevant to your current situation that could meet your objectives, needs and priorities. For example, upon finding out that a client is heavily indebted, one of the first recommendations could be a plan to pay back the debt on a monthly basis.

Step 5: Implementing the financial plan recommendations.

In this step you and the Adviser have to agree on implementation responsibilities that are consistent with your current financial situation. You must agree and accept the financial planning recommendations in order for the Adviser to action the plan - which may involve getting a certain product or a service.

Step 6: Review the client’s situation.

Lastly, you and the Adviser need to define and agree on terms for reviewing and re-evaluating your situation, including goals, risk profile, lifestyle and other relevant changes. This step is important towards regularly improving the plan to ensure that you meet your financial goals.

Managing your finances can be a stressful process, which is why you need an expert to partner with you on the journey. It's important to find a certified and qualified Adviser to assist you with this as they are in the know about the latest trends and developments in the personal finance space. Send us an email to to find you an adviser.

Financial Planning Institute of South Africa - Click here.

Investopedia - Click here.



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