Financial planning is the practice of putting together a plan for your future, specifically around how you will manage your finances and prepare for all of the potential costs and issues that may arise. The process involves evaluating your current financial situation, identifying your goals and then developing and implementing relevant recommendations.
Financial planning is holistic and broad, and it can encompass a variety of services, which we detail below. Rather than focusing on a single aspect of your finances, it views clients as real people with a variety of goals and responsibilities. It then addresses a number of financial realities to figure out how to best enable people to make the most of their lives.
Financial planning is not the same as asset management. Asset management generally refers to managing investments for a client. This includes choosing the stocks, bonds, mutual funds and other investments in which a client should invest their money.
However, the same professionals who offer asset management services can also offer financial planning. A financial planner is effectively one type of financial advisor. Advisors can earn certifications focused on financial planning, the most notable of which is “certified financial planner (CFP).”
Understanding the Different Types of Financial Planning
A financial planner may offer a variety of services to you. These services will often be considered in concert with one another. This helps the planner put together an overall plan that considers all aspects of your current situation and future aspirations.
Here are some of the services that you’ll frequently see offered as part of financial planning:
- Tax planning: Financial planners often help clients address certain tax issues. They can also figure out how to maximize your tax refunds and minimize your tax liability. Certain advisors may also be able to actually help you with preparing your taxes and filing your annual taxes.
- Estate planning: Estate planning seeks to make things a bit easier for your loved ones after you die. Preparing a will may be part of a financial planner’s services. Estate planning also helps prepare for any estate tax you may be subject to.
- Retirement planning: You presumably want to stop working some day. Retirement planning services help you prepare for that day. They ensure that you’ve saved enough money to live the lifestyle you want in retirement.
- Philanthropic planning: It’s always nice to give something to people who need it or help a cause close to your heart. Financial planning can help you ensure you’re doing it efficiently and getting all the tax benefits you’re eligible for.
- Education funding planning: If you have children or other dependents who wish to pursue a college degree, you may want to help them to pay for it. Financial planning can help make sure you are able to do so.
- Investment planning: Though financial planning doesn’t include the actual management of your assets, it can still help with your investment portfolio by mapping out how much you should be investing and in which types of investments.
- Insurance planning: A financial planner can help you evaluate your insurance needs. Some financial planners are also licensed insurance agents and can sell you insurance themselves. However, they’ll likely earn a commission, which would create a conflict of interest.
- Budgeting: This is perhaps the cornerstone of financial planning. A planner can make sure you are spending the right amount given your income and can also make sure that you aren’t going into debt.
