What Financial Planning Is Not

The term "financial planning" is sometimes misunderstood by people. Below are some of the examples:

Financial planning is only for the rich

Most people reason that they do not need financial planning because they do not have a lot of assets that necessitates organizing and planning.

Unfortunately, that is not true. As a matter of fact, those who do not have much accumulated wealth have even more reasons to plan. Financial planning is about allocating your assets and apportioning your income to ensure that there are adequate financial resources to meet various circumstances in life. It is about balancing your limited financial resources for various life goals. Comparatively, those who have more wealth are definitely more prepared for various circumstances.
 

Financial planning is all about achieving highest returns on investment (ROI)

Many misinformed individuals think that financial planning is all about achieving ROI. For that matter, they tend to ignore other areas of financial planning like wealth protection, preservation and distribution.
 

Instead, they focus most of their financial planning on wealth accumulation. Financial planning is about helping you to fulfill certain critical financial obligations in life.
 

For example, financial planning involves planning for proper family financial security, which helps you to fulfill your responsibility to your family. Financial planning also involves planning for sufficient funds for medical treatment should any critical ill-ness strike.
 

In short, we must remember that financial planning is more about fulfilling the meaning and obligations of life rather than only achieving the highest ROI.
 

Financial planning is unit trust and life insurance planning
 

Based on my personal observations, many individuals tend to equate financial planning with unit trust/ insurance planning. Most people think that "financial planner" is a new title for unit trust or insurance agents. Undeniably, much of the efforts and resources to promote financial planning has been contributed mainly by financial institutions like insurance companies and unit trust companies.
 

There are also many insurance and unit trust agents who have taken the effort to equip themselves with professional qualifications such as the CFP and ChFC. As such, it is no surprise that the public has the false impression that the financial planner is none other than the insurance or unit trust agent whom they know.
 

However, as stated earlier, financial planning is a process. Unit trust or insurance recommendations only appear in the fourth step of the financial planning process, and are given only if necessary. Consumers must not pre-judge anyone who carries a financial planner name card as none other than a unit trust or insurance agent. Rather, we should assess the validity of those who call themselves financial planners, depending on the application of the financial planning process in advising their clients.
 

There are many misunderstandings about financial planning that deter us from taking a proper look at their personal finances. However, that should not stop us from taking advantage of the financial planning process to achieve our financial independence.

More Financial Planning Articles