Financial Planning is not just for the rich

1.0 Financial planning is not only for the rich.
“I am not rich, so I do not have money and do not need to do financial planning”. This is a misconception in financial planning but also a common conception in many people’s attitude of financial planning. How many people know that financial planning is how the wealthy became wealthy? Before I start this topic, I want to illustrate that the principle of financial planning is the person with income. Financial planning is managing your money and uses your money to make more money, but not a magic that produce money for you in any time and any situation. So financial planning can works for anyone except the person without income.
Financial planning is the process of meeting your life goals proper management of your finances. Life goals can include buying a house or car, saving the education fees for children, having a rich and happy retirement life. As everyone known that all these goals are need money as a strong assistant. There is a popular sentence about financial planning these year,”if you do not plan your money, the money will not work for you”. So, what is your capital? And how can you get your goals? Different people have different strategies. The rich needs to grow and protect their wealth, and the not so rich needs to maximize their resources to ensure a lifestyle for themselves and their family. When you want to maximize your existing financial resources by using various financial tools to achieve you financial goals, that is financial planning. I will discuss this topic from two aspects in this assignment, financial planning process and categories of financial planning.

1.1 Financial Planning Process
Financial planning process is a good method to help everyone understanding this misconception. Here, I will introduce this process as a financial planner:
Step 1: Establishing a relationship with a professional financial planner. Your financial planner will explain his or her financial planning services and define each of you responsibilities. In this part, you can discuss how long the relationship will last and how to make decisions.
Step 2: Gathering the client’s data and setting a goal for the client. The goal is not only being a millionaire but also can small as buying a headphone. Everyone should set the goals based on your own situation. Here, the clients must provide the real information which can help your financial planner knowing your real current financial situation and help them to make the most efficiency plan for you. Then you will define your personal and financial goals, including time frames, and you may also want to discuss your comfort level when it comes to taking financial risks.
Step 3: Analyzing and evaluating your financial status. Your financial planner will consider all aspects of your situation to determine what you need to do to meet your goals.
Step 4: Reviewing the financial planner’s recommendations. In this step the financial planner will explain the rationale so you can make informed decisions and listen to any concerns you may have and revise his recommendations if necessary. For example, buying a house, the financial planner maybe suggest the rich clients paying the money in one time, but advise the clients who are not so rich making a mortgage payment.
Step 5: Implement the financial planner’s recommendations. The clients and their financial planner will need to agree on how the recommendations will be carried out.
Step 6: Checking your progress against the financial goals you established. As ou work towards your goals, you and your financial planner will need to decide who will monitor your progress to make sure you are staying on track. If the planner is in charge, he or she will check in from time to time, reviewing your situation and making any necessary adjustments to his recommendations.
From the process, we can find that different person can have different plan to get different goals. It means that not just the rich can dose or does better financial planning, the plan which is most suitable for yourself and can make the maximum profit for you is the best one for you based on your own situation. No matter you are rich or not, you all need to manage your money and maximum the production efficiency of your money. So this is the work of financial planning.

1.2 Categories of Financial Planning
From most opinions of my friends, I found that most people think financial planning is just fiance or focus on money. Yes, this cannot be said wrong opinion, but it is really not exactly enough. Firstly, financial planning and finance are the two different subjects totally. I will not discuss this topic in detail because this assignment is not focus on this. In one word, we can consider finance as analyzing and studying the data and what happened in the past period, but financial planning is planning your future finance by the past data and trend. Secondly, financial planning is really about money, finance and business are all about money, but financial planning is more focus on the word “planning” but not “money”. No matter a person is rich or not, if you have a good and suitable plan for your money, you have been on the way to wealth. And financial planning not only plans your money but also protects your life, in another word, it is a guarantee of your life. So, no matter the rich or the poor, everyone wants a stable life.
Next I will illustrate this point by some areas which are included in financial planning to make you understanding why financial planning can make your life with guarantee.

1.2.1 Insurance Planning
Insurance planning is nothing but managing the risk by planning to deal with contingencies and unforeseen events to help out our family’s future. Effective insurance planning will ensure you to adequately cover insurable risks of breadwinner’s life, health, car and home and financial independence for dependents by proper use of tax benefits offered by insurance products. Insurance planning ensures insurance sufficiency check to understand if you are over or under insured, and it helps to maintain your family’s standard of living in the event of your death or disability. It can protect your income in the event of total permanent disability; protect you or your family in the event of an accident; cover our medical expenses; protect your family in the event of premature death; protect your income in the event of critical illness; and so on. Life insurance can be the foundation for you and your family’s financial security. And you earned income is probably your greatest financial asset, without proper financial protection a serious illness or accident could have a devastating financial impact on you and your family.
Can you be sure as to what may happen to you in the next few minutes? As everyone know like this life is full of uncertainties and unpredictable events, so insurance is needed to provide peace of mind for you and your family.
So it is clear that insurance planning forms an important part in your financial planning process. Although you are not a rich person, you do not want to have a protection about yourself and your family if there is any uncertain thing happen?

1.2.2 Tax Planning
Firstly, I must emphasize that tax planning is not tax evasion. Tax planning is taking advantage of all the tax knowledge and tools at your disposal before the last day of every year in order to estimate your income taxes, qualify for the right credits, deduct the most expenses, and ultimately to reduce your taxable income. Tax planning involves selecting the right tax saving instruments and making investments.
If you have planned your taxes successfully enough to receive a tax rebate, you should invest it in your own saving account and use the money to start preparing for next year’s taxes. From this view, people does not need to pay so much on tax although you can not get profit from a good tax planning. I think no one is willing on paying to government by your hard-earned money, no matter how much you earn or how rich you are.

1.2.3 Investment Planning
Investment refers to a commitment of funds to one or more assets that will be held over some future time period. Now, most of us are saving money but not investing, because many people think that investment is with risk, they prefer to put money in bank. This is really the fact, but how many person can realize that investment can use money to make more money, and reducing the risk is one of the objects of investment planning. A smart person will think about how to make the money for him or her,but not make the money staying in bank with the low interest and waiting for the inflation. In my view, the difference between the poor and the rich is the attitude on money: the poor saves money but the rich use money to invest. Regardless of why we invest we should all seek to manage our wealth effectively, obtaining the most from it. For example, everyone does not have income after retiring without working, and this makes many people feel nervous or stress because they can just live by savings. But some people still can get income steady in the same time and situation. This income is passive income which is almost from investment.
We all work for money, it is equally important to ensure that money works for us. Everyone should do investment to improve our future welfare. The rich wants to earn more money and know how to get it by itself, so investment planning has been a normal tool which help them to achieve their objects. For the poor, investment planning is more important to help them becoming the rich and protecting their life.

1.2.4 Retirement Planning
Retirement planning is the process of determining retirement income goals, actions and plans on how to attain those goals for a smooth transition from the lifestyle before retirement to the lifestyle after retirement. It brings an end to your earning potential life which indicates not just financially bur in all aspects of life. The non-financial aspects include such lifestyle choices as how to spend your time in retirement, where to stay, when to permanently quit from your working life, desired level of living, and so on. A good retirement planning approach will consider al these apart from normal monetary aspects to execute proper retirement plan.
Some people say that retirement planning is planning to maintain and enhance your existing standard of living during retirement years. But in my opinion, the most important aspect of our retirement plan is to ensure that you are financially secure and financially independent during your retirement years.
Uncertainty of social security and pension benefits, unforeseen medical expenses, the flexibility to deal with changes are all the main reason to make retirement planning. There is a good sentence “The life of your retirement is the standard to define if your life is happy and wonderful.”

1.2.5 Estate Planning
Estate planning is an ongoing process and should be started as soon as one has any measurable asset base. It not only lets you decide who gets what, and gives you the critical mechanism for choosing a guardian for your minor children, it allows you to set things up in a way that minimizes taxes and may prevent your estate from going through a lengthy probate process. As life progresses and goals shift, the estate plan should move to be in line with new goals. Lack of adequate estate planning can cause undue financial burdens to loved ones, for example, the estate taxes can run higher than 40%, or make a family issue between the benefits because of the distribution of the estate. So at the very least a will should be set up even if the taxable estate is not large and the family is peaceful.
There are five main reasons of making a estate planning: avoiding probate, reducing estate taxes, avoiding a mess, protecting beneficiaries and protecting assets from unforeseen creditors. You have the responsibility to arrange the things well after you die as long as you have estate and family. More asset you have and more complicated of your family, it is more important for you to do estate planning. It is so late and difficult to do estate planning when you become rich or old enough.

Conclusion:
Everything can be describe like this,“ If you fail to plan, you plan to fail”. So, you really need financial planning as long as you are breathing.

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