Basic Financial Planning Process
Concept
Financial planning is a structured, repeatable cycle for helping a client meet life goals through proper money management — spanning protection, savings, investment, retirement and estate — and underpinned by the time value of money. Because circumstances and markets change, the process is cyclical: the final review step feeds back into the start.
Key rules & facts
- Need areas: protection (insurance), savings (emergency/short-term), investment (accumulation), retirement (income including CPF LIFE), and estate (wills, CPF nomination, legacy planning).
- Time value of money (TVM): a dollar today is worth more than a dollar tomorrow because it can earn a return → future value (compounding) and present value (discounting); inflation erodes purchasing power, so goals cost more later and starting early matters.
- The process is cyclical — step 6 feeds back into step 1 as goals, circumstances and markets change.
Key data — the 6-step process
| Step | Name | What the adviser does |
|---|---|---|
| 1 | Establish the relationship | Disclose role, scope, remuneration; set expectations |
| 2 | Gather data & determine goals | Fact-find (quantitative + qualitative); prioritise goals |
| 3 | Analyse & evaluate | Cash flow, net worth, ratios, protection/retirement gaps |
| 4 | Develop & present recommendations | Match solutions to needs; balanced disclosure |
| 5 | Implement | Put the agreed plan into action |
| 6 | Monitor & review | Periodic + life-event review; loop back to step 1 |
(verify exact wording against the current Financial Planning guide.)
Need areas mapped to client concerns
| Client concern | Need area |
|---|---|
| "What if I die or can't work?" | Protection (insurance) |
| "I need cash for emergencies" | Savings / emergency fund |
| "I want my money to grow" | Investment (accumulation) |
| "Will I have enough to retire?" | Retirement (CPF LIFE, savings) |
| "What happens to my assets when I'm gone?" | Estate (will, nomination) |
Worked example
A client wants $50,000 for a child's education in 10 years. Because of the time value of money, saving must account for future value — the target grows with inflation, and the amount to set aside today (its present value) is smaller the earlier they start and the higher the assumed return. This is why "start early" is the standard advice.
Exam angle
The correct order of the six steps; matching a client concern to the right need area; and basic TVM reasoning (why goals cost more later, why starting early helps).
⚠ The trap
Misordering the steps (recommending or implementing before gathering data and analysing), or forgetting the final monitor/review step that makes the process a cycle.
Takeaway
Relationship → data → analyse → recommend → implement → review, then loop — and a dollar today beats a dollar tomorrow.
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