Many of you know, I am working on my CFP certification and doing courses thru Boston University. I was fortune to read online materials prepared by experienced professionals and one among them is Carolynn Tomin. She is a Certified Financial Planner™ professional who specializes in financial education. Carolynn is a consultant to Boston University’s Program for Financial Planning, where she edits, writes and oversees curriculum for their online Financial Planning Program.
As we are discussing more about 401K, retirement and financial planning in the past few posts. I decided to get in touch with her personally and was able to get some answers for questions everybody has these days.
Vijai: Can you explain to an ordinary person who doesn’t have any money management experience about financial planning? Is it a essential to any person for their financial wellness?
Carolynn: The purpose of financial planning is to make sure you have a plan in place to reach your financial goals. Money is only a means to an end- what do you need to spend it on (your fixed expenses) and what do you want to spend it on (your short-term and long-term goals) Once you have identified your goals you will know how much money you will need at a future date. Then you devise a plan to make sure that money will be available when you need it. If you don’t have enough income, assets, investments etc. to reach your goal, you may have to delay achieving your goal or create strategies to obtain more income, invest more wisely, save more money each month, cut back on your discretionary expenses etc. But if you don’t have a financial plan in place, you may be planning to fail.
Vijai: What do you see as the major distinction between financial planning and estate planning?
Carolynn: Estate planning is an important part of financial planning. Estate planning protects you, your family and your entire estate, which is the wealth and assets you have accumulated during your life, and plans for how those assets will be protected and distributed during your life and at death. Estate planning also ensures that you have proper legal documents in place such as wills, trusts and powers of attorney, and estate planning may even lower your gift and estate taxes.
Vijai: What is the importance of Will and Trust?
Carolynn: There are many different types of trusts and they are used for specific purposes. For example, if you wanted to protect your property if you became incapacitated, you could set up a revocable trust now that would manage your money and property if you became incapacitated in the future. All trusts have a trustee who manages the money and property in the trust for the trust beneficiaries.
Vijai: I mentor people to be their own financial planners. I recommend them to start planning their finances for their better future. I tell to make money rightly, save more, spend less and give graciously. At the same time, no one can be an expert of everything. It is a tough task so I suggest them to seek CFP and CFA’s help when thing go beyond your control. What do you think about that?
Carolynn: I like your approach to helping people who are in need of financial planning advice. Many people are overwelmed by the complexity and sheer volume of financial planning information that’s available when they are trying to sort out what information may pertain to them. Once they get beyond learning the basics of financial planning there are topics such as insurance, investments, retirement planning, taxes and estate planning to learn about.
People who need financial planning advice should consult a Certified Financial Planner because that person has completed their education, has passed a rigorous 10 hour exam, has at least 3 years of work experience, and they are bound by a Code of Ethics for Certified Financial Planners. These 4 E’s- education, examination, experience and ethics are what separates Certified Financial PLanners from those who just call themselves financial planners or financial advisors. People in need of planning will receive competent advice by Certified Financial Planners who will put their clients interest before their own. That’s because CFP practitioners have a fiduciary duty to put their client’s interests first.
I hope to get some more questions answered and will publish them as Final part.