Most people want to retire with some level of financial security. We all want the peace of mind and self-dignity that comes from knowing that we are not at risk of ever becoming a burden on our families, the government or the state.
Knowing and understanding the three different phases of financial planning can act as a road map and help us prepare a good solid financial plan to improve our chances of meeting our life goals.
There are three different phases of financial planning:
The Accumulation phase The Distribution phase, and The Preservation phase
As the name implies, the first phase, the accumulation phase is the period of accumulating assets that will contribute to your wealth. This phase include your working years. First you learn to earn money, and then you determine how best to manage your money to make it grow into wealth. You can effectively do this by investing in different asset classes that will form the foundation of your wealth.
This phase provides a certain level of financial stability and most people never leave this phase their entire lifetime. However, majority of the population do not even enter this phase to begin accumulating any assets. They continually live from paycheque to paycheque without giving much thought to their financial future.
If you find your self in this phase, if you have invested in your first property (not your residential home), if you have started or purchased your first business, or purchased some stocks and shares, congratulate yourself.
Examples of common asset classes to contribute to your wealth include:
Cash (Treasury Bills, Money Markets, CDs) Bonds Stocks and shares Land and Property (real estate) Precious metals
The best advice for those in the accumulation stage is to hold onto the assets you are acquiring, and allow time to work it’s magic. Set time-bound goals for how long you intend to accumulate your assets before moving on to the next phase. Work diligently on your plan and keep your focus.
Continually learn more about the different asset classes available and diversify by investing in several classes. Different assets have different qualities and strengths, as well as risk and rewards.
Investing in several asset classes is a sound investment strategy that can significantly increase your ability to reach your investment goals faster.
The distribution stage is the period when you get to enjoy the benefits of wealth, when you get to draw down income from your assets. It is the reason for accumulating assets in the first place. After years of planning, investing and accumulating assets by the time you reach this stage your wealth is generally assured. Often by this time, your income is on autopilot to recur almost without much effort on your part. Most people can only dream about this phase.
The last phase is the preservation stage. This is the period when you plan to preserve and protect your accumulated wealth and prepare to safely transfer it to your rightful heirs.
In all three phases, there are three factors that can significantly erode the net value of your wealth. These are easily identified by the acronym PIT for:
Procrastination Inflation and Taxes
Whatever phase you are at in your financial plan, give careful thought to these three elements to reduce their threat to your net worth.
The key to reducing their threat to your wealth is to address them as soon as possible. The longer you wait, the more damaging their impact becomes. With the right investment strategy, you can enjoy your wealth, and simultaneously keep it intact.
The first most important step to financial planning is focussed asset accumulation. Start saving now to build and accumulate your wealth. Until you save, you cannot accumulate. The earlier you start planning, the sooner you will save, and the faster your assets will grow.
By: Margaret Ntifo
Posts Tagged ‘Bonds’
Careers In Financial Planning-Do You Have What It Takes To Excel As A Financial Planner?
November 12th, 2009
So you’re looking for careers in financial planning? A career in this highly competitive field can be one of the most satisfying and rewarding careers you will ever have.
Of course, careers in financial planning are very competitive, and does require some good marketing skills to acquire clients. Here is a list of the duties this job entails, so you can make an informed decision about whether or not this might be the career choice for you.
Quits simply, you will help your clients achieve their financial goals, whatever they may be. Whether it is planning for retirement, getting wealthy, escaping the rat race, paying for college, etc, you will help them plan and map out a course to achieve those goals.
As you might guess, you will need a lot of knowledge into areas of investment such as stocks, mutual funds, bonds, etc, vehicles to help your clients achieve their financial goals. Of course, the most important thing you need in financial planning careers, besides all this, is credibility. Quite simply, if you aren’t walking the walk, then you can’t talk the talk.
For instance, if you are advising a client to invest in a stock you would never even consider for yourself, your credibility is shot. Obviously, in order to achieve this, you need to be on solid financial ground yourself.
Nobody will take advice from a financial planner whose finances are a mess themselves. Many of the more knowledgeable clients will often times ask you what stocks you are currently investing in, or what kind of shape you are currently in financially to validate that you are the right person for the job. If you on shaky financially ground yourself, they will simply look elsewhere.
Most of all, you have to care about your clients and want to see them realize their financial goals. This is the number one factor of this job. If you aren’t good at working with others, then this definitely isn’t the career for you.
As a financial planner, you can work either for somebody else or have your own company. Many financial planners choose to become sole proprietors because of the freedom it offers; quite simply, this way you can set your own hours, and the sky is the limit as far as income. If you opt to work for somebody else, you will likely be working on a salary basis and are more limited in how much you can earn.
I hope this information has helped you to determine whether or not a career in financial planning is right for you. If this sounds of interest to you, then by all means check it out.
If you want to work for a larger corporation, then a degree in finance will probably be necessary; obviously if you become a sole proprietor, this won’t be as important.
The bottom line: if you enjoy helping others, and in one of the most important areas of their life, then careers in financial planning may be right up your alley. There is a lot of opportunity in the financial planning field today. This is one of the most rewarding careers in existence, because it empowers you to help others realize their financial (and ultimately life) dreams.
By: Josh Neumann