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The Savings Game

Good financial planning requires establishing clear goals

By Humberto Cruz
November 13, 2009

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While touring Orlando with a group, some of my traveling companions asked what I do for a living. When I said I write about financial planning, they all asked if I give stock tips.

Regular readers know that I don’t. This common question reveals a fundamental lack of understanding of what financial planning is.

Financial planning is “the process of meeting your life goals through the proper management of your finances,’’ says the Certified Financial Planning Board of Standards, an independent group that awards the certified financial planner license.

In turn, the financial planning process involves “gathering relevant financial information, setting life goals, examining your current financial status and coming up with a strategy or plan for how you can meet your goals given your current situation and future plans,’’ the board says.

That’s where a lot of people fail. They don’t have a strategy or plan and, in many cases, they don’t have a goal. Without a clear and measurable goal, it’s impossible to come up with a plan to achieve it.

“I want to be rich’’ is not a real goal. “I want to save $30,000 over the next 10 years to help put my child through college’’ is a goal, one you can measure your progress against.

What are your goals? My reader mail and other anecdotal evidence suggest few people think them through and even fewer write them down. Writing your goals strengthens your commitment to achieve them.

When a consumer hires a financial planner, the financial planning process should include six steps, according to the board:

■Establish and define the client-planner relationship.

■Gather the client’s financial information and goals.

■Analyze and evaluate the client’s financial status.

■Develop and present recommendations and alternatives.

■Implement recommendations.

■Monitor the client’s progress toward the stated goals.

Except for the first step, these are all things we can and need to do on our own if we can’t or don’t want to hire a planner. But again, I’ve met few people who keep careful track of their finances or come close to estimating their net worth. If you don’t know where you are or where you want to go, how can you possibly come up with a financial plan? For useful tips on financial planning, see www.FPAforFinancialPlanning.org.

Humberto Cruz can be reached at AskHumberto@aol.com.