Question

300-400 words, APA citation and reference.

• Define the financial planning process
• List the elements of a good financial plan.
• Identify and discuss the three most important personal factors and the three most important economic factors that affect your financial planning decisions.

Answer 1

(a) Financial planning process consist of step by step process to effectively analyze, evaluate and implement financial plan in order to utilize the available financial resources of the organization in the most efficient way possible (Wright, 2014). The key steps involved in making a effective financial plan is as follows:

• Determining current financial situations
• Developing financial goals
• Identifying alternative course of actions
• Evaluation of alternatives
• Creation and implementation of financial action plan (Koh, 2012).
• Revaluation as well as revision of plans

(b) Elements of a good personal financial plan:

• Cash flow planning
• Planning for retirement
• Making plans for investments
• Insurance planning
• Income Tax planning (Mak, 2014).
• Planning for education (Children and grand Children)
• Estate Planning

(c) Three most important personal factors that affects personal financial planning process:

• Risk Profile: The ability of an individual to take risks decides a lot about the financial planning of individual. If the risk profile is high, the planning can be made a bit more aggressive, while if risk profile is low, the financial planning will be more conservative (Warschauer & Sciglimpaglia, 2012).
• Age: The risk profile of an individual is directly linked with the age of individual, a person in the age of hos 20's and 30's can take more risk than an individual who is at the age of 50's and 60's. Therefore, it is also a important factor.
• Number of dependents: If the individual would be having high number of dependents on himself, then certainly the risk appetite will go down and the financial planning will be more conservative and vice versa.

Three most important economic factors:

• GDP growth: A country which is having high GDP growth, will have more avenues to invest in and at a higher interest income. If the Economy grow, the overall sentiment of investments gets increase and thus the same is reflected in portfolio investments. Therefore Financial planning do gets influenced by the economic growth of the country.
• Inflation: High inflation means high interest rates, profits will go down and consumption will take a hit, thus lower stock prices and less opportunity to make investments, therefore lower rate of inflation is equally important for effective return on financial plan.
• Interest Rates: Higher level of interest rates can make it difficult for businesses to grow and prosper, also high interest level will make bank deposits more attractive to investors and they will become risk averse. Thus low portfolio returns in longer run.

References:

Wright, D. A. (2014). U.S. Patent No. 8,635,101. Washington, DC: U.S. Patent and Trademark Office.

Koh, B. (2012). Personal financial planning. FT Press.

Mak, S. C. L. (2014). U.S. Patent Application No. 14/356,060.

Warschauer, T., & Sciglimpaglia, D. (2012). The economic benefits of personal financial planning: An emperical analysis. Financial Services Review, 21(3).