Many people do not realise how important personal financial planning is. No one can predict what will happen in their future, but by planning for the unexpected it can certainly alleviate some of the anxiety.During the course of a person’s lifetime, they may experience job loss, death of a spouse or even an injury, which makes it impossible for them to work again.Whenever something happens in our lives that affect us financially, it can cause great strain. After dealing with the stress of an extremely turbulent couple of years in the world of financial markets, most people are taking a serious look at their personal finances and are recognising the need for an independent evaluation of their finances.So What is Financial Planning?Financial planning is a process whereby an individual or a couple sets objectives, assesses all resources and assets, estimates any future financial needs and makes necessary plans to achieve those goals.It includes a variety of areas, such as cash flow management on a daily basis, selection and management of investments as well as insurance needs. There are many elements that are involved in financial planning. This includes items such as risk management, allocation of assets, investing, estate planning, retirement planning and education planning.No two people will look at financial planning the same because everyone will have a different focus.For some individuals, financial planning means finding investments that will offer security upon retirement. For others, it is about investing and saving enough money to send your children off to university.Being financially healthy affects your physical wellbeing and financial planning gives you peace of mind.Where Do You Start?When dealing with your finances, it’s best to bring in the professionals and work with a financial planner who is qualified to provide an actual finance plan. Working with a financial planner will also aid in maintaining the necessary discipline to stick to the financial plan.The first step in financial planning is to determine how you actually manage your income and expenses month to month.Are you a spender or are you a saver? Is your income only just covering your expenses and there is very little “breathing” room or are you in the fortunate position to have your income cover all your expenses and have money dedicated for savings? Understanding your cash flow and how you choose to manage it can give a financial planner a clear indication of any challenges that might be ahead.The next step is to create a net worth statement. This is really the blueprint that determines your financial worth and also gives a clear indication of how your assets are weighted and whether from a diversification standpoint you are well-rounded.After creating your net worth statement, the third step is to discuss your goals and what you are trying to achieve? Is it savings for an education fund for your children, increasing your net worth by 10 percent annually or enjoying a comfortable retirement? Whatever the goal might be, putting a plan in place will certainly give you the tools you need to achieve it.The fourth step of your financial planning is to review your contingencies and make sure that you have adequate insurance and emergency funding in place so as to avoid financial ruin in a catastrophic situation. A financial planner will look at things like life, disability and home and contents insurance, which can offer immediate solutions when faced with life’s unexpected challenges. It’s important to understand your lifestyle.Are you a highly stressed person? Do you eat healthy meals? How much do you exercise? When reviewing your contingencies it’s important to get the full picture; your lifestyle choices will affect your contingency planning.The fifth step in financial planning is to review your investments. It’s important to understand how you feel about risk and what type of return is needed in order to reach your goals. Also, make sure that you are well-diversified and that your goals fit within the investments you currently have.If diversity is minimal, look at how your portfolio of investments can be re-structured for maximum return with minimal risk.Lastly your financial planner will present you with the financial plan. However, it doesn’t stop there; you will need to implement it. With all the tools and techniques provided in the financial plan, implementing the plan will be easy.Once it’s implemented the financial planner will sit down with you every six to 12 months to update it. Were there any changes in your life? Was the return on the investment piece realistic? How much closer are you towards your goals?Unfortunately, many people delay in preparing for the future as they are too busy maintaining their current financial situation. No matter what a person’s income level is or what their future plans are, financial planning is essential.For more information contact 294-5712 or cseely[AT]aflinvestments.bm