financial plan - Investment & Finance Definition
An outline of a person or family’s financial goals and the steps that are necessary to reach them. The goals can include establishing a cash reserve for emergencies, purchasing a home, funding children’s education, or setting up a retirement account.
In order to establish a financial plan, it is important to gather current financial data. Then the data must be analyzed in conjunction with the goals that have been selected. Alternatives should be evaluated and decisions made. The plan must be monitored to make sure that it is being implemented correctly.
A financial planner can be hired to set up a financial plan. A planner can be effective in helping examine current savings, investment, and insurance strategies along with budgeting practices. A planner also helps evaluate retirement planning efforts and tax planning. Financial professionals who may work as financial planners including accountants, life insurance advisors, stockbrokers, investment advisors, and attorneys specializing in tax or financial planning. Some people have a more general professional background and are simply financial planners.
Several organizations for financial planners give out professional designations that are designed to set their members apart from others who call themselves financial planners but may not have as strong quali- fications. The Certified Financial Planner Board of Standards Inc. of Denver, Colorado issues a certified financial planner (CFP) designation. Those who hold the CFP designation must past a test, have minimum education and experience levels, and promise to adhere to ethical standards.
Financial planners use a variety of methods to charge for their services. Some fee-based financial planners charge an hourly rate or a flat rate for their advice. They don’t earn a commission for investments that their clients purchase. Some financial planners charge a percentage of the assets under management. Other financial planners make their money through commissions they earn when an investment they recommend is purchased by their client. Some financial planners may be compensated through a combination of fees and commissions.