Home > Articles > Business & Management > Finance & Investing

What Is Financial Planning?

  • Print
  • + Share This
Whether you work with a generalist or a specialist, it is important to have an integrated financial plan. Bonnie Kirchner explains financial planning and the difference between a generalist and financial specialists.
This chapter is from the book

This chapter is from the book

Financial planning is a larger field than you might think. It is actually made up of a number of components, and it is difficult for any one advisor to be an expert in every aspect of it. Relating financial planning to the medical field, you will have advisors who have a broad base of knowledge and might act as a generalist. These advisors very often can work with clients in a holistic manner but might have to find "specialists" in more complex situations. Whether you work with a generalist or a specialist, it is important to have an integrated financial plan. As one of my former colleagues put it, "If you don't know where you're going, any road will take you there." The major areas of financial planning that need to be considered are

  • Cash Flow: This is where it all starts. Without positive cash flow, there are no funding mechanisms for other goals. Unfortunately, our culture has fostered poor cash flow habits. Americans have become far too reliant on the use of credit to feed their immediate desires to the detriment of their long-term goals. The first step to financial planning is understanding what is coming in by way of resources and what is going out via expenses and whether or not there is anything left over in the end. If the cash flow is zero or negative before other goals are funded, budgeting must be addressed.
  • Taxation: It's not what you make; it's what you keep. Proper tax planning can actually create resources to help fund other goals. Tax laws change nearly every year, which is why it is important to review your tax return with your advisor to see if there are adjustments that can be made in order to help save money and/or fund financial planning objectives.
  • Retirement: Financial educator Dee Lee says it in a nutshell, "There are no scholarships for retirement." For most people, retirement seems too far away when they should start saving for it that it gets put off. Throughout my 20-year career, I've seen the retirement picture change drastically. When I first started working with retirees in 1990, it was pretty typical to meet with people whose major retirement resources were Social Security and a corporate pension. Since then, I've seen more and more companies moving from Defined Benefit retirement programs to those of the Defined Contribution type. The difference? The latter puts more responsibility on the employees for decision making in regard to the vehicles for growing their retirement savings and, in many cases, funding. Though corporations do make attempts to educate their employees, efforts are not effective enough at this point and rarely impact the younger workforce. As corporate benefits change and Social Security remains in question, proper retirement planning must become a priority for the vast majority of individuals.
  • Risk Management: This is a fancy way of saying "insurance planning." Insurance is needed for protection against those risks you can't afford to cover with your existing assets and income level. A proper financial plan will analyze what insurances are appropriate and at what levels. Coverage in the areas of life, disability, homeowners, liability, auto, and long-term care should be reviewed as part of the planning process and reviewed periodically. Coverage needs to be changed over time and is dependent on situational circumstances and financial resources.
  • Education Funding: The cost of higher education rises each year at a rate higher than inflation; thus, it is never too early to start building a fund to cover these expenses. The problem with college funding is that it comes in direct conflict with other planning goals. For a lot of people, decisions must be made on how to allocate funds between retirement and education objectives, all the while maintaining the proper insurance coverage to protect the overall financial plan.
  • Estate Planning: Believe it or not, everyone already has an estate plan. If you have assets, it makes sense to put some plans in for "when your case matures." (My estate planning professor, Dr. Robert C. Suter, used this phrase when referring to death.) If you have a spouse and children or elderly parents to care for, it is imperative. If your assets are above a certain level, which will vary from state to state, and you prefer to leave Uncle Sam and your state's coffers out of your will as much as possible, it is important to bring an attorney who specializes in this field onto your financial planning team.

Though not all of these areas will apply to everyone, a well-shaped plan will incorporate all applicable pieces in a way that the whole will be greater than the sum of its parts. The challenge of financial planning is one of conflicting goals. It is not atypical to have limited dollars chasing a number of different financial objectives. In this situation, planning is imperative. Plan preparation should be followed by reviews and adjustments on a regular basis. Just as most people have their health evaluated on an annual basis, financial planning should have the same prerogative. Unfortunately, most people spend more time planning their annual vacations than working on their financial futures. Hopefully, some of the positive outcomes of our most recent financial crisis are that Americans will become more responsible about spending wisely and not over using credit and learn to dedicate more time to planning their finances.

Does each area of financial planning require its own specialist? It depends on how complicated the situation is. Many financial advisers can proficiently assist clients with putting together a plan and helping them find the proper products to use and/or appropriate specialists. Unless the advisor is also an attorney, most people will need a lawyer to prepare legal documents for estate planning purposes in the client's state of residency. Some financial advisors also do tax preparation in addition to planning, though many clients choose to do their own taxes. Regardless of how many advisors are involved and what roles they play, it is important that all parties work together as a team. Frequently, the financial advisor is responsible for coordinating the various components and the individuals involved to keep the financial planning ball rolling effectively and efficiently.

In working with individuals for nearly 20 years, I've come to realize the role of various advisors can be confusing, probably because the lines are not clear cut. Typical advisors include

  • Financial Planner: A financial planner is an advisor who is focused on the big picture and can provide direction in the various areas of financial planning. He might get paid by the hour, a set amount for a particular plan provided, based on a percentage of assets managed, and/or via product sales. In the event a planner is compensated via product sales, be sure she has the appropriate licenses and registrations for the products being provided. A financial planner can be independent or work for a brokerage firm or an insurance agency. How he has chosen to set up his practice might give you clues as to his areas of expertise and even how he gets paid. In other words, if the advisor is associated with an insurance company, she might have more of an insurance affiliation and a background in risk management and estate planning. An advisor who chooses to represent a brokerage house may be oriented toward investments. A financial planner will typically have training in the six areas of financial planning as described earlier in this chapter and is likely to have or be working toward credentials such as becoming a CERTIFIED FINANCIAL PLANNER™ professional or Chartered Financial Consultant. Advisor designations are described in Chapter 3, "The Meaning Behind Advisor Designations and Licenses."
  • Insurance Representative: An insurance representative might be independent and represent a number of companies or affiliated with a particular insurance company. He is likely to be compensated via the sale of products, typically insurance and annuities, though he might also be able to provide mutual funds and other investment products as well. It is important to understand whether the advisor is influenced in any way to recommend particular companies or products when providing advice or if she is able to offer a wide variety of companies and products, helping you to get the best fit for your situation. Be sure the insurance representative is licensed to do business in your state of residency as each state has its own requirements for insurance licensing. If she is also offering investments, make sure she has the proper securities licenses for the products being discussed. Licensing requirements are addressed in Chapter 3 as well.
  • Investment Representative: Like the insurance representative, an investment professional might be independent or part of one particular company. He is likely to be compensated via product sales or assets under management. The representative is most likely to be registered with a brokerage firm or an independent broker/dealer.
  • Certified Public Accountant: More and more CPAs and tax preparers are getting into the financial planning and investment fields. It is a natural fit given that the IRS Form 1040 and its various schedules are some of the most information-packed resources for a financial advisor. However, don't forget that it does take specialized training to provide specific recommendations on investments and insurance, not to mention proper licensing and registrations.
  • Registered Investment Advisor (RIA): An RIA is an entity which manages money for a fee and could be regulated by the Securities and Exchange Commission or the State, regardless of whether or not it has a broker-dealer affiliation. An RIA will typically be fee-only, however some choose to affiliate with a broker/dealer so that they can also perform transactional work and get paid.
  • Investment Advisor Representative (IAR): Performs for fee investment management services as a representative of a Registered Investment Advisor firm.
  • + Share This
  • 🔖 Save To Your Account

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information

To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.


Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.


If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information

Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.


This site is not directed to children under the age of 13.


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information

If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information

Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents

California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure

Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact

Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice

We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020