Title- Financial Planning
Author- Sakshi Kotian
- The Psychology of Financial Planning and Behavioral Finance
Klontz and T (2023) states that the behavioral finance helps in making sense of human cognition and biases and how they impact financial behaviors, the broader field of financial psychology integrates other bodies of knowledge to help financial planners understand clients’ unique psychology around money and equip them with tools to help clients improve their financial health. A financial planner’s work is much more than just giving a client financial advice and managing a client’s investments. Embracing the psychological aspects of financial planning will help a financial planner acquire, service, and retain clients, but can do so much more. The psychology of financial planning will equip the profession with the theory and tools which would help clients to reach their financial goals, improve their relationships, increase their financial and life satisfaction, and help improve the financial health of society at large.
- Financial Planning Concepts
CORDELL et al (2012) has described about investment planning, retirement planning, and estate planning. Holding stocks for a long time doesn’t necessarily reduce the variability of returns. Caution is urged when other personal risk factors are present because they can overwhelm the time factor. An economic model incorporating human capital and financial wealth shows that the stock allocation in the retirement portfolio should start declining when human capital equals financial wealth. A high percentage of both men and women believe that they will accumulate less than they will need for retirement, and their need estimate is substantially below the level recommended by financial advisors. Estate planners should plan for disposition of intangible assets, a growing segment of client wealth. Digital asset documents should be part of every estate plan.
- Economics Approach to Financial Planning
KOTLIKOFF (2008) concludes that when it comes to personal finance, economics keeps one issue front and center that is living standards. Spending, saving, insuring, and investing all of these decisions boil down to smoothing the living standards, protecting our living standards, and making informed, careful gambles to raise our living standards. Virtually all other personal financial questions begin and end as well with the living standards. By measuring their living standard impacts, economics can finally answer these and hundreds of similar questions and take the dangerous guess work out of much of personal finance.
- Goals-Based Financial Planning
Sin et al (2019) states that the financial planning is a process where individual/household investment goals are identified and ranked. Understanding people’s goals is a central part of helping people make good choices and developing plans that are suitable for their long-term objectives. The success of goals-based planning hinges upon two important steps that is eliciting goals that are most important to investors and prioritizing those goals. Yet, behavioral biases may manifest and undermine the efficacy of goal-based financial planning. The main limitation of this study is that participants were not making real decisions with their real money. However, these researchers found that people generally enjoyed the process and found the master list of goals exhaustive enough to be relevant to their real-life situations.
- Empowering Women in Financial Planning
MCKAY (2023) concludes that the evolving financial landscape highlights the increasing importance of women’s role in shaping the future. To promote women’s empowerment in financial planning, it is crucial to acknowledge and address the barriers they face. By actively tackling these challenges, financial planners can pave the way for women to enhance their financial independence. Collaborating with women in the financial planning process requires a tailored approach that recognizes their unique perspectives, concerns, and goals. A clear understanding of the opportunities and challenges they may encounter enables female clients to make informed financial decisions and navigate life events with confidence. Empowering women in financial planning extends beyond individual financial well-being. By empowering women to navigate their financial futures, they contribute to personal growth, community development, and positive change for the future.
- Life Insurance in Financial Planning
PARRISH, (2014) emphasize that financial planning as a discipline has gone through an amazing, even radical, transformation in the last four decades. While the same could be argued for life insurance as a product, since it did not had a big change in how the product was presented. The modern day life insurance illustration is in many ways just an expanded version of a rate book quote: “If you pay X, you will get Y.” The time has come to use new tools and techniques to present the many uses of life insurance, and to better integrate the product into a financial plan. The consumer has more control over financial product buying decisions than ever before. Financial Planning can make those buying decisions appropriate and rewarding.
- Bonds in Financial Planning
CORNELL et al (1992) states that bonds traditionally have been the province of institutional investors. However, as individuals seek to diversify their portfolios and add an element of certainty to future investment returns, bonds have become increasingly popular. Bonds can help individual investors meet a variety of goals. Bonds are fixed income securities issued by federal, state and local governments and their agencies and by corporations. They pay periodic interest at a specified rate during the bond term and return the full amount of principal at maturity. The possibility of default by the issuer is one risk bond investors face. Another risk is the possibility of changes in prevailing interest rates, which includes reinvestment and price risk. To protect against reinvestment and price risk, bond investments can be immunized; that is, the bond duration is equal to the investor’s desired holding period. A bond portfolio can play an important role in a diversified investment plan when carefully selected and managed with little or no unnecessary risk being taken.
- Financial Planning for Retirement
BLANCHETT (2023) concludes that despite significant advances in computing power and a relatively extensive body of research on the nature of retirement, assumptions in retirement research and income planning tools have evolved only modestly over the last 30 years. This lack of evolution has created an environment where many financial advisors and online calculators provide overly simplistic advice on one of the most important decisions made by households: how much to save for retirement. literature in the retirement income space introduces a series of models that can improve retirement income projections by better understanding the elasticity of spending, modeling changes in spending based on changes in finances, and determining the optimal strategy using a utility function that better quantifies the expected satisfaction across outcomes. It is important that the estimates to be as accurate as possible given the significant time and energy associated with funding retirement. This research demonstrates that existing retirement planning frameworks have notable deficiencies that should be addressed to ensure retirees receive the best guidance and advice possible.
- Life and Financial Planning in the Time of COVID-19.
BELLETSKY et al (2020) states that in the time of economic and social crisis, life insurance and financial planning advice is more valuable than ever. The tough economic news of the past few months affects clients in many ways. Review of life insurance needs and planning strategies, retirement savings, asset allocation, tax efficiency, and general wealth planning have never been more important. COVID-19 was a good time to consider proactively reaching out to clients and informing them of the potential ramifications of the current economic upheaval. The professionals will offer planning advice that might be appropriate for clients, again first from a personal planning perspective and followed by an assessment from a business owner’s perspective. Financial professionals have an obligation to engage in the review activities described and a duty to provide what is in the clients’ best interest.
- Selecting Best Financial Planning Software
Segal (2010) concludes that a financial plan is can be considered as good plan depending upon the client’s ability and willingness to understand and implement it. Depending on the client’s certain types and formats for reports may have a better impact on the client’s implementation progress. Understanding clients is important to determine what types of reports are of the best value and enable you to present your findings and recommendations most effectively. For middle- income clients professionals probably do not need software that provides in-depth analysis of estate and legacy issues or provides only a cursory overview of budgeting/money management. Different software package provides different methodologies, such as cash flow-based planning versus goal-based planning. Consider planning philosophy while evaluating various software options and eliminate any that do not align with preferred methodology. Use financial planning software adoption plan to identify the specific functions needed to achieve the business objectives.
Conclusion
In conclusion, Financial planning is important in professional as well as in personal life. As a financial planner it is important to study client’s unique psychology around money. Understanding psychological aspects will help financial planner to acquire, service and retain clients. Investment planning, retirement planning and estate planning are some of the important concepts of financial planning. As advised by the financial advisors investment should be planned in a such a way that it benefits the clients at the time of retirement. So that along with investment planning the retirement is also planned. Financial planning includes spending, saving, insuring and investing and all these decisions boil down to smoothing the living standards. As all these factors are related to standard of living there is an economic approach to financial planning. Financial planning is done for certain long- term objectives. The long-term goals can be successfully achieved by managing and prioritizing those goals. To promote women’s empowerment in financial planning, it is crucial to acknowledge and address the barriers they face. By actively tackling these challenges, financial planners can pave the way for women to enhance their financial independence. Life insurance plays a significant role in financial planning. New tools and techniques can be used to present the many uses of life insurance and to better integrate the product into a financial plan. Bonds traditionally have been the province of institutional investors. However, as individuals seek to diversify their portfolios and add an element of certainty to future investment returns, bonds have become increasingly popular. A bond portfolio can play an important role in a diversified investment plan when carefully selected and managed with little or no unnecessary risk being taken. Lack of evolution has created an environment where many financial advisors and online calculators provide overly simplistic advice on one of the most important decisions made by households: how much to save for retirement. It is important that the estimates to be as accurate as possible when it comes to retirement planning. Life insurance and financial planning advice is more valuable at the time of economic and social crises. COVID-19 was a good time to consider proactively reaching out to clients and informing them about planning strategies, retirement savings, asset allocation. Understanding clients is important to determine what types of reports are of the best value and enable you to present your findings and recommendations most effectively. Use financial planning software to achieve business objectives.
References
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SIN, R.; MURPHY, R. O.; LAMAS, S. (2019) Goals-Based Financial Planning: How Simple Lists Can Overcome Cognitive Blind Spots. Journal of Financial Planning, [s. l.], v. 32, n. 7, p. 34–43. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=6053708c-7548-33fe-b8b2-75cb89818949.