Financial planning is a very vague term, and So is Financial Advisor. So how are you to know what a financial advisor is and what he does. If I got a dollar for every time someone asked me “So what is it that you do exactly” well I might not need to be a financial advisor anymore. Ok maybe I am exaggerating, but it is definitely an area that needs more clarity.  Some people might Think Financial Planning is  about fixing your credit, paying off debt, how to help you save more or budget your money; and some might think its just about investing. The truth is, Financial Planning should involve all of those things. A financial plan can’t fix your credit, but I’m pretty sure there is a positive correlation between getting your finances in order, paying off debt and increasing your credit score. Sorry no instant fix there. Although, there are some things you can do specifically to help increase your credit score, but we will talk about that in another post. Check out the ones that we already have under the credit section of the site. Lets look at 5 key areas that address the fundamentals of financial planning.


The first step in financial planning is having a solid budget. Putting all of your expenses into some type of tracking method and reviewing it monthly. Its important to not just pick numbers, but take a look at what you have done in the past and set realistic expectations going forward. Your budget should not only include fixed expenses like rent and cell phone bill; but you need to plan out how much money you intend to spend on groceries, dining out, shopping etc. Sounds so simple right? Yet so many people have no clue where some of their money goes EVERY month. If your cash flow is a little tighter than you want it to be, you have to be even more diligent with your approach to budgeting. You have to identify when certain bills are due in relation to when you get paid. This will help you identify when you have to flexibility to spend on certain things and when you don’t. Or it may even help you identify that you may need to see if its possible to change some of your due dates for your bills so that you’re not so squeezed at certain points in the month and your cash flow can be more spread out. Which is one main reason why people tend to overdraft their account aside from simply just not paying attention. In their mind, they know that they make X dollars per month and their expenses are Y. What they haven’t focused on however, is if there are certain moments in the month where more is coming out of the account than what was deposited.


Ideally, after you created a budget, its with the intent of having some money left over. However, this money needs to be budgeted, too. Treat your left over money just like a bill, and pay it every month. You may consider breaking your saving up into different segments. One for none revolving or unexpected expenses ( vehicle taxes, car maintenance, flat tire, etc) . Another specifically for the possibility of losing your job, building up a few months worth of your living expenses. Lastly you may consider having a saving account for major expenses that you plan to have in a given year. (Down payment on a house, furniture, vacation etc.)


 First you’ll want to identify why you want to invest? Retirement, Buy a house, start a business etc. Then you will want to determine how long you want to invest the money. You might also want to consider how long you will need to use the investment once the the time comes to access the money. Sometimes the purpose for investing will answer this question itself.  You’ll also want to figure out what type of investor you are. Essentially, how much risk are you willing to take for a possible reward. This can be evaluated by taking a risk tolerance assessment.  Whether you are conservative, balanced, aggressive etc it will narrow or widen the guardrails for suitable investments for you. Then you will have to research investments that fit your risk tolerance.

Risk Management

Saving for a rainy day is one way to mitigate risk, however, it goes a little deeper than that. You have insurance on your cell phone more than likely, why? Probably because you have identified that you would rather pay a small price every month and/or a deductible rather than paying retail price for your phone if you have an accident. Same goes for other areas of your life. What happens if you got hurt or sick and could not work? How would you pay your bills? An emergency fund is only for a few months in the event you lose your job, but no one can predict how long an illness or injury could last. Do you have disability insurance? Is it enough? Should you get more? These are questions you are going to want to ask yourself. If you had a family that depends on you, its even more important, and you’d also want to identify what you would want life to look like if something happened to you and you were no longer here all together. Do you have enough life insurance? You get the point here. This is also a good time to consider if you should establish a will or trust.

Retirement Planning

One day, when you decide that you no longer want to or have to go back to work, its likely because you’ve identified that you have saved up what you think to be enough money to live on for the rest of your life. The idea of retiring just because you’ve reached a certain age, isn’t really an option anymore. Back when we had more faith in social security and most companies offered  pensions, you might feel a little better about not focusing on retirement planning as much. This is not the case anymore. Having a successful retirement is placed solely on the shoulders of you and what actions you took throughout your working years. So retirement planning is making sure that you 1. Don’t run out of money, 2. Can live the lifestyle you envisioned once you retire. That has a lot to do with how you invest your money along the way and how much you are able to put away; but it has more to do with making sure that you take/distribute the money out of your respective accounts in the most efficient manner possible so that you can keep more of it. to properly evaluate this you have to consider factors such as inflation, market risk, taxation risk and the risk of living a very long life.
Other areas that are addressed in financial planning are estate planning (mentioned briefly in the section about risk), tax planning and other needs that may be specific to your situation. So, as you can see, Financial Planning is a very involved process, having an advisor to help you navigate through it could save you time, money and mistakes. You just have to make sure your definition of “Financial Planning” is in alignment with the way he or she works with their clients. So from now on when someone ask “What is financial planning, you can confidently tell them, or refer them to this post 🙂