Pre-Assessment in Financial Planning

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Table of Contents

Introduction
Personal Financial Planning
Financial Goals and Objectives of the Client
Client’s Supportive Actions towards the Goals
Actions Hampering Objective Achievement
Conclusion
References

Introduction

Financial management is not only an organizational issue, but also a personal issue, as individuals normally undertake financial management in a family or a social setting. Each independent family or individual has a unique financial position and financial intentions that drive their lives to success (Irving, 2012). Apart from corporate financial management, the issue of personal and family finance has been the focus of various contemporary studies. Individuals and families, akin to big organizations need to have financial objectives and understand personal financial planning to survive in harsh economies that seem unstable and financially fragile (Irving, 2012). Personal financial planning is the process of running individual’s finances to attain economic accomplishments. Personal financial planning enables individuals to manage their financial conditions for their money meets their specific goals and needs (Gitman, Joehnk, & Billingsley, 2013). Few families understand financial planning and often lead miserable lives financially. In this viewpoint, this essay seeks to provide a pre-assessment in personal financial planning through an appraisal of a potential client.

Personal Financial Planning

Many people across the world are employees working for organizations, while some are minor entrepreneurs relying on salaries and wages as their prime sources of their personal finance (Irving, 2012). Since most industrial workers reside around towns and cities, where employment opportunities are diverse, expenses are normally high and financial planning is therefore imperative. Even across the countryside and rural suburbs, the consumption of money is normally infinite and how individuals plan for their money actually determines successful survival (Irving, 2012). The foremost aspect in successful money management is normally the development, commitment, and implementation of a personal financial plan that guides budgeting. Financial management and planning research continues to unveil that individuals who plan their money normally make enough savings, feel contented about their progress, and make informed financial decisions however meager their earnings may seem (Gitman et al., 2013). In the context of this family financial planning, the report assesses the client’s financial objectives, and actions that promote or hamper the successful achievement of the plan.

Financial Goals and Objectives of the Client

The financial assessment report uses Camilla as a personal client whose financial planning is under appraisal. Economists argue that strategic financial plans of a family should always encompass long-term and short-term objectives aimed at constructive management of income, assets, and liabilities (Leimberg, Satinsky, Doyle, & Jackson, 2009). Economists argue that strategic financial plans of a family should always encompass long-term and short-term objectives aimed at constructive management of income, assets, and liabilities. The family financial assessment of Camilla’s family begins with an assessment of financial goals and objectives of the client. Inappropriate financial planning without objectives leads to reckless misuse of money. Camilla developed two short-term objectives and two long-term objectives. According to Boon, Yee, and Ting, (2011), setting financial purposes and objectives of a personal financial plan help in a periodic review of the success and progress of the financial plan. Economists also believe appropriate financial goals must be realistic, specific, measurable, and timely (Boon et al., 2011). Hence, the following are goals and objectives of financial planning.

Short-term Family Financial Planning Objectives

Planning involves short focus that seems achievable within a certain time and responsive to present financial factors (Irving, 2012). Short term planning is an arrangement of achieving aims that are realistic, time limited, and requires special immediate attention and readily available resources (Gitman et al., 2013). Camilla has prioritized some family issues that require urgent financial attention and has developed short-term objectives that include the important needs established.

The first financial objective: To make enough savings ($80,000) to engage in a professional development course that would support to enhance her competence and employment prospects.

The second financial objective: To accumulate funds ($120,000) and begin a small enterprise that would supplement the family income while personal monthly wages run other family needs.

Long-term Family Financial Planning Objectives

Camilla also understands that the process of personal financial planning requires long-term goals that require little financial urgency and demand. According to Irving (2012, p. 56), “financial planning and achievements remains monitored through a review process, and the setting and refinement of short-, medium- and long-term financial and lifestyle goals.” Long-term goals, increase personal commitment and focus towards the future.

The first financial objective: To accumulate money ($350,000) and acquire a residential house around the city to cut down the rental expenses experienced each month.

The second financial objective: Save money ($180.000) for the expansion of the developed business and acquire some businesses within the city.

Client’s Supportive Actions towards the Goals

An appropriate personal financial planning requires constant savings and supply of money to stabilize and manage the underway projects of the plan. Camilla understands that proper financial stability for the family requires a maximum commitment to saving strategies. Economists claim that the first short-term intention of any family is to have an emergency cash reserve and therefore, banks provide the safest method of saving. Personal savings if practiced well enhance financial stability of a person. Camilla has opened two bank accounts: a fixed saving bank account and a simple savings account to handle emergency needs whenever situations force the family to withdraw from the bank. Having a regular amount of savings and developing money saving behavior automatically deducted through the payment systems is crucial to any personal financial planning. Camilla has remained committed towards making enough savings as she regularly withdraws her salary and makes immediate deposits to the savings accounts on a monthly basis.

A key component to any successful personal money management is the ability to control regular expenses that consume personal finance. Important to any personal financial planning is family budgeting, as family expenditure budget is the prime consumer of family income and resources. According to Swart (2004), personal financial planners must understand that a family budget is a liability and budgetary trimming may be cost-effective. Camilla has been very cautious about family expenditures for controlling the family budget that has always consumed much of her personal savings and income. Budget cuts enhance financial stability of families (Gitman et al., 2013). Although Camilla is a middle-income earner in her workplace and within the town, family budgeting is constantly affecting achievement of her major life ambitions. Camilla has set a monthly budget funding system that involves the basic family necessities she must buy, and the reasonable amount of money to spend on the budget. She often sends children to the countryside during vacations to maximize saving.

The aforementioned financial behaviors of Camilla indicate that the client is aware of the concept of spending and saving as a successful tool for financial planning. To supplement her monthly income, Camilla has found a part-time employment with another company that pays on a daily basis per every completed assignment. Moreover, Camilla has bought shares from a leading business in the city, an investment that cost her $100,000 and hoping to receive back the accumulated gains in two years. For successful planning, investing in extra income generating assets or business is imperative. Swart (2004) asserts that people need to invest and acquire assets that generate wealth and improve their economic lives. Income generated from such assets can also be useful in supplementing the regular income and assure families better lifestyles than income earned from salaries alone. To avoid recurring debts, Camilla has reduced dependency on bank loans and overdrafts. Savings have greatly enabled Camilla to invest in her businesses and children since they take a significant amount of her earnings.

Actions Hampering Objective Achievement

While the client may be appropriately devising strategies that help in saving and controlling expenditure through an effective spending and saving planner to guide her spending decisions, Camilla has underestimated some important financial issues. Irving (2012) states that personal financial planning is a broad field of economics and does not merely rely on enough savings or effective budgeting, but requires a compressive appraisal of the present state of family income, financial resources, and proper capital planning. Financial planning requires an effective written plan, but not a mere plan. Families should plan their resources judiciously so that they can have a secure future because the demands of life increase with time (Swart, 2004). Despite being industrious in making savings, Camilla does not evaluate the current financial status of her family and no signs of any appraisal. Current financial status is a factor that largely determines the success of personal financial planning.

A Statement of Net Worth

As opposed to the traditional means of determining family wealth where economists would only use total net worth figure to establish the degree of family wealth, economic analysis has changed nowadays (Swart, 2004). In personal financial planning, a planner must always consider preparing a net worth statement to evaluate the financial position of the family before setting financial objectives. A net worth statement enables one to ascertain the current financial stability of the family through estimating the value of assets and liabilities of the planning household (Boon et al., 2011). Personal financial planners can easily overestimate or underestimate their ability in raising the required savings within the stipulated time to achieve the stated goals (Swart, 2004). Camilla does not have any record or balance sheet indicating any of her assets, liabilities, and expenses that would enable her track her personal financial progress. Such financial planning behavior shows that the client is reliant on informal and basic financial planning rather than scripted financial planning.

No Expenditure Records

To understand and evaluate a common trend of family expenditure, a planner requires undertaking an assessment of past income and expenses to enable the planner understand the trend of family financial consumption (Gitman et al., 2013). Before even developing the plan, Camilla had a behavior of failing to keep records of expenditure and family earnings. An effective plan must have a focus that comes from analyzing family financial history before setting financial objectives to accomplish (Boon et al., 2011). Prior to the development of her financial plan, which require the use of mental approach rather than a logical strategy, Camilla explicitly states that she has a behavior of misplacing receipts, bank statements, checkbook registers, and credit card records. Many unaccounted for expenses, including unexpected expensive takeout lunches and dinners, travelling and other leisure expenses in the family of Camilla go unnoticed or even economically underestimated. Lack of financial records that tracks family expenditure may ruin the progress of an effective financial plan.

Oblivious about Financial Assets and Expenses

Similar to lack of knowledge about a net worth statement is the issue poor understanding of common expenses and intangible financial assets (Boon et al., 2011). Camilla has been spending immensely on some family expenses that are mandatory but programmable. Common expenses that ordinary people cannot ascertain in their expenditure are undocumented taxes, insurance expenses, and automobile expenses such as driving licenses. For a successful financial planning, planners should consider financial portfolio savings, income, debt, and expenses (Irving, 2012). Camilla only acknowledges family basic expenses and ignores some important expenses such as calculation of school fees, healthcare needs, and other necessities that do not have a direct impact on the monthly budget. Underestimating some expenses makes Camilla unable to ascertain the exact net income and sometimes refer the extra expenses as emergency requirements. Although negligible at times, the expenses of children normally affect the financial position of families.

Poor Money Handling Culture

An effective family plan requires commitment to savings to an extent of developing unique financial saving culture (Boon et al., 2011). Camilla has a culture of withdrawing and handling cash, yet most of her money rarely comes in cash. The likelihood of individuals making enough savings through cash deposits is normally an uphill task as economic hardships of the contemporary days force employees to squander their money (Boon et al., 2011). People have now acknowledged that the best approach towards making enough savings is allowing their employers to help them make savings through automatic deductions from their income paychecks into their savings accounts. Reckless spending occurs when individuals have enough access to tangible cash (Swart, 2004). The chances of building a strong cash reserve from regular cash deposits are normally diminutive compared to the savings made through income or wage paychecks. Hence, such cash depositing behavior would affect Camilla’s financial planning.

Conclusion

Financial planning as a concept has undergone a series of reforms from the organizational level and narrowed down to family and personal level. Personal financial planning, as an individual financial management decision, aims at strategically accumulating finances to achieve a range of future financial and lifestyle purposes. Nonetheless, several issues determine the ability of an individual to prepare and accomplish a personal financial plan. Personal financial planning first requires assessing the current financial position of an individual, setting realistic and achievable financial objectives, making savings strategies to build financial capacity, and reducing expenses. Apart from making appropriate spending and saving plans, understanding major financial tools is essential. Fundamental to the process of personal financial management is the net worth statement that helps to determine the financial position of individuals, measuring the progress, keeping track of expenditures, and determining the overall objectives achievement. Whereas doing extra activities to supplement the net income is imperative, proper scrutiny of expenses is equally vital.

References

Boon, T., Yee, H., & Ting, H. (2011). Financial Literacy and Personal Financial Planning in Klang Valley, Malaysia. International Journal of Economics and Management, 5(1):149-168.

Gitman, L., Joehnk, M., & Billingsley, R. (2013). Personal Financial Planning. London: Cengage Learning.

Irving, K. (2012). The Financial Life Well-Lived: Psychological Benefits of Financial Planning. Australasian Accounting Business and Finance Journal, 6(4), 47-59.

Leimberg, R., Satinsky, J., Doyle, J., & Jackson, M. (2009). Financial planning (10^th ed.). Erlanger: The National Underwriter Company.

Swart, N. (2004). Personal Financial Management. New York: Juta and Company Ltd

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