Understanding the financial planning process can help you to create effective action items that will improve your finances.
This is your go-to financial strategy. It will show you how to budget and where to invest.
You may not know where to begin with your plan and want to consult an expert.
You can also improve your finances without the help of a financial advisor.
You can use the seven basic steps below to plan your finances if you are interested in DIY finance.
Table of Contents
What is a Financial Plan?
Financial Planning Process: 7 Steps
Why Should you hire a financial planner?
What is a Financial Plan?
A financial plan is an individual document that helps you assess your financial situation, set money goals and make better decisions in the future. This plan can be created by you or a certified financial advisor.
According to the CFB Board the financial planning process can be defined as follows:
“A collaborative process that maximizes a client’s potential to meet life goals by providing Financial Advice that incorporates relevant elements from the client’s personal and economic circumstances.”
Why is a financial plan important?
You learn a lot about your financial situation during the planning phase. It’s also possible that without a personal financial plan, you may not have realized your current situation.
A financial plan is essential for many reasons.
Understanding your income
Understanding your current cash flow
How to Build More Capital
Improve your family finances
Start building better investments
Budget and Spending Maximized
You can achieve your financial goals by following these steps
Financial Planning Process: 7 Steps
The CFB Board created the seven steps in the financial planning process. These steps are meant to provide financial planners with a framework for working with their clients.
You can teach yourself personal finance by following these steps. Here is a slightly different approach to personal financial planning if you’re not a certified planner.
Financial Planning Process in 7 Steps:
Understanding your financial and personal circumstances
Set your goals and expectations
Evaluate the situation and analyze your plan of action
Financial planning recommendations: Developing them
Reviewing financial planning recommendations
Financial planning: Implementing recommendations
Monitor progress and provide updates as needed
Understanding your financial and personal circumstances
A financial planner will learn about you, your family, your goals, and so on. If you’re DIYing, you will need to know where you stand with your finances and your current situation.
You should analyze everything, from your financial mindset to your lifestyle and your future goals. This information, which you have mastered and written down, will be used in your financial plan.
Use simple tools such as Personal Capital or Mint for financial reports. You can start with something as simple as a budgeting calendar.
Step 2: Set your goals and expectations
You can begin to set goals as you analyze your financial data. It can be more fun to think big when you are doing financial planning.
What are your long-term objectives?
In this step, you’ll want to set your expectations. You’ll also want to establish your expectations in this step.
These goals and expectations will help you decide which areas are the most important, and where your money and effort should be focused.
Step 3: Evaluate the situation and analyze your plan of action
You will need to analyze your current financial situation and make adjustments as necessary. You will be able identify areas where you can improve, whether you are on a good financial path or not.
Begin with a few basic questions and expand on them as you gain a better understanding of your financial situation.
What is your current networth?
Do you have a positive cash flow?
What is your net worth?
What are your current debts and how much debt do you have?
Are you able to reach your goals or are they ones you cannot reach?
What are your plans to invest and save money today? What is your plan?
Step 4: Develop the financial planning recommendation
We are now in the fun part! This is the step where you will put in place action items to achieve your goals and improve financial health.
You can choose from a variety of areas to focus on, depending on what you want to achieve. Here are some areas you can begin.
Remember: Your plan will evolve and change over time as you take into account many variables. Keep in mind, however, your tolerance for risk and your overall goals throughout the entire plan.
Decide where and how much you want to spend your money. You can use this for savings, payments, or investments. Personal Capital is a platform that allows you to track your investments and view your net worth.
Consider how you will use the income you earn. Are you able to do this through side hustles or other means? Job hopping? Asking for raises? How will you invest that money? Understand what you will do if your income drops, you lose your employment, or a costly emergency occurs.
Plan for areas of your finances that you might not enjoy. Consider estate planning, particularly if you have a growing family and complex assets. It’s also worth considering life insurance. You can get a quote from Bestow online for free. These items can help you organize your estate and protect your family in the event of your death.
Plan how you will invest your money. You can start investing with just a few dollars using platforms such as Acorns or Stash if you do not have much money to invest. You can choose your investing style based on personal goals, needs and risk tolerance. Keep it simple, search for low-cost fees, and diversify. Stash allows you to start investing for just $5. After completing registration and opening a Personal Portfolio, Stash will add an extra $5.2.
Step 5: Review the financial planning recommendations
You have now spent some time putting together your plan, and you’ve also put action steps in place. It’s time to go over everything since you may not remember everything and time has passed.
You don’t need to be stuck in a constant cycle of tweaking, but you may want to make some adjustments before you implement the plan. Discuss the plan with your partner or significant other, ask for their feedback or insights, and make sure everyone is on the exact same page.
You can consult a financial advisor to review your plan and see if you missed any other suggestions.
When I started my plan, I put it aside for a couple of days. Then I came back to it with a new perspective. I was able to analyze my plan and think more clearly before starting.
Step 6: Implementing financial planning recommendations
Implementing your financial plan is the next step after you have completed all of your previous work. This is one of the most difficult steps to take (after getting started).
Most people are enthusiastic at first, but it’s easy to lose momentum or skip a step. You tell yourself that you will return to the step, but this cycle continues. You’ll be wondering what went wrong a few months or weeks later.
Accountability is a must, regardless of the actions that you plan to take. Create a calendar to track your finances, assign days for financial tasks, or set reminders. Connect with a financial adviser or estate attorney.
If you are employed by a company, make sure to check out your employee benefits. Many large organizations offer resources, classes or meetings on health insurance, investing and retirement planning, as well as specifics regarding your 401k or 403b account.
Step 6’s main goal is to start your plan with attainable goals. This will keep you motivated and focused when you finish a task.
Step 7: Monitor progress and update as needed
Even though there are only seven steps in the financial planning process it takes time to put them together. Even when you have completed the final step, there is still work to be done. Your plan is not complete until all goals are met.
Over time, your priorities and circumstances may change, requiring you to adjust your plan. Your financial plan may have been created with specific steps at the start, but life can throw you curveballs that make your plan no longer work.
In some areas of your plan, you’ll find that you made the wrong assumptions. You may find that parts of your plan are incomplete, your life has changed, or it’s become outdated. This is completely normal, and it’s expected that this will happen throughout the life of your plan.
You should review your plan regularly to stay informed about any changes or updates that may be needed.
Why Should you hire a financial planner?
You can see that there are many things to consider when it comes time to plan your finances. You can succeed all by yourself!
There are several reasons you may want to hire a financial advisor:
It would be more comforting to have someone on whom you could rely for expert advice.
You are intimidated by the prospect of researching and digesting financial data and you prefer to avoid mistakes.
It is important to have someone hold you accountable in terms of your financial plan, and progress.
Get quick answers to your money queries without having to wade through conflicting information online.
You are so busy with work and family obligations that you don’t have time to create a plan.
You own a lot of assets that are appreciating and you have a large net worth. Therefore, you need to get advice on the best way to protect your finances.
You can search for a financial planner on the CFB Board website if you’re ready to start working with one. This will ensure that you’re working with someone who has been certified and adhered to the appropriate education, experience, ethical standards.
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