I was able to interview Mr. James Watson, a certified Financial Planner and founder of the Watson Financial Consultants based in Chicago. Mr. Watson was able to shed light upon key financial planning issues as discussed below.
Description of a Comprehensive Financial Plan
According to Mr. Watson, a comprehensive financial plan involves the analysis of all the faces of the financial events such as retirement planning, analysis of cash flow, managing risks, managing tax, and planning of estates. It is through detailed analysis of the financial planning that a proper financial condition can be determined. In order to achieve better results, proper plans from financial advisor are recommended. In this paper, steps of successful financial planning, how the plan utilizes the time value of money, and the areas the concept can be applied, are discussed in details.
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Steps taken in Ensuring Success of a Financial Plan
In order to have a successful financial plan, various steps are needed as Mr. Watson suggests. First, agreeing and defining goals and objectives on financials. These goals and objectives are the guidelines for financial planning and provide a roadmap for financial future. The financial futures should be achievable and quantifiable, have a defined timeframe and clear, and needs and wants should be separated. Mr. Watson further suggests that they should be documented and agreed with the financial adviser and assist in measuring progress
Second, your personal information and the financials should be gathered; financial process planning and the success depends on clarity and quality of the information given to your adviser. A detailed financial fact-find is completed by the adviser in order to capture information which is relevant in relation to finances which includes; expenditure and income, liabilities and assets, and risk attitude, capacity and tolerance
Third, analysis of financial and personal information. The information provided in the second step is used to produce a report financial profile. Different ratios are produced to improve understanding financial circumstances and to point out your weakness and strength: savings ratio, solvency ratio, debt service ratio, and liquidity ratio. Addressing the objectives and giving the recommendations are also required. This involves the calculation of net worth, calculation of annual tax and the cash flow.
Additionally, Mr. Watson suggests that there is an abstract and implementation of the plan. Once the development and analysis of the plan are completed, the recommended course of action is outlined. Implementing involves investment strategy or a new pension, changing debt provider, serious illness insurance or additional life, and income and expenditure adjustments.
Time Value of Money
The above financial planning utilizes the concept of time value of money in several ways. First, it applies in decision making on spending money and can also be applied in evaluating a company’s plans of making payments. The concept can be applied in the calculation of retirement planning. This is because one requires calculating correctly the amount of money that one requires in future due to inflation. In addition to that, the concept can be used in solving problems of savings, loans, mortgages, and annuities. All of these financial elements are inherent with time value of money.
Question on Insurance Policy
On the hypothetical question on how to select an insurance company, according to one is required to perform research on the insurance companies in order to know which company is reliable. First, the rating of the company is very important. The rating can be checked online. An average rated company is always better to go. Lastly, the size of the company and the complaints against the company are also key values to consider before going for the purchase. For example, a company rated Aaa is a top ranking at Moody but A++ is the best ranking at A.M.
Importance of the Assignment
During my experience with Mr. Watson and the overall research, I was able to gain significant knowledge concerning financial planning. Also, during the assignment one is able to garner an understanding of the importance of having a proper and comprehensive financial plan.
References
Lusardi, A., & Mitchell, O. S. (2011). Financial literacy and planning: Implications for retirement wellbeing (No. w17078). National Bureau of Economic Research.
Parrish, S. (2018). The Life Insurance Agent as Financial Planner. Journal of Financial Service Professionals , 72 (2).
