The Financial Planning Process—Everything You Need to Implement It

Updated · Nov 22, 2022

Almost everything we do in life—from vacationing to starting a business—requires financial planning.

Regardless of the goal, you need to set objectives, make sacrifices, and organize your finances to achieve it.

The financial planning process can facilitate that. Whether you hire a professional or create a plan yourself, the following step can help you achieve your goals faster.

Read on to see what they are and how to complete them.

What Is Financial Planning?

The definition of financial planning is the process of identifying goals and creating strategies to improve your financial future.

It also involves taking stock of your current finances, estimating your future needs, and identifying any gaps that need to be filled.

You can hire a certified financial planner to develop a strategy or follow the steps for financial planning yourself.

Financial Planning Steps

The Certified Financial Planner Board of Standards is a non-profit organization that trains individuals in personal financial planning.

It awards them the CFP certifications after thorough training and the completion of several exams.

Certified Financial Planners (CFPs) use the financial plan steps to help individuals and companies organize their finances.

Below, we discuss each step in detail and explain how you can adjust them to your needs and apply them.

Step 1: Understanding the Circumstances

The first step in the financial planning process is understanding the client’s circumstances. This includes factors like current income, debts, expenses, goals, risk profile, and so on.

With this information, the planner can develop a clear picture of the client's financial situation and begin to identify potential areas of concern.

If you walk the steps to financial planning alone, the start could be the most difficult part. But there are ways to make it easier, whether you’re budgeting for yourself or your family.

The most important thing is to remain impartial and try to see the situation from a neutral perspective.

Step 2: Identifying and Setting Goals

This part lays the foundation for the rest of the steps in financial planning.

Without clearly defined goals, it’s impossible to develop an effective financial plan. Your objectives need to be realistic and specific.

Vague goals such as "saving more money" or "getting out of debt" are not likely to result in lasting change. Instead, try to set measurable goals with timelines and steps you can track over time.

For example, "save $500 for a rainy day fund by December 31st" or "pay off my credit card balance within two years."

This part of the financial planning strategy is almost entirely up to you, whether you’re working with a consultant or alone. That said, a CFP can help you set achievable and concrete objectives.

Step 3: Assessing the Current Financial Situation

This step of the financial planning process includes an analysis of income, expenses, assets, and liabilities. This will allow you or the CFP to identify any areas for improvement.

Highlighting the strengths and weaknesses of your current financial state and actions will help tailor the plan to your situation.

If you’re already going in the right direction, your strategy may need minor adjustments.

Step 4: Develop the Plan

Finally, we’ve come to the essence of the financial planning process—developing strategy. With the information gathered in the previous steps, you or the CFP can create a personalized plan.

This should include recommendations for budgeting, saving, investing, and managing debt. It should also lay out a timeline for implementing each step of the plan.

For example, your personal financial plan may include paying off your debt and building an emergency fund first, and only then saving for retirement or investing.

The timeline will depend on your aspirations and capabilities.

Step 5: Presenting the Recommendations

If you’re working with a financial planner, in this step, they will explain the recommendations and the reasoning behind them. Your role is to decide if they are a good fit.

If you’re working alone, this part doesn’t concern you. Without it, the steps in financial planning you need to complete are six.

Step 6: Implementing the Financial Plan

The next step of the financial planning process is implementing the strategy. Once the plan is in place, it's all on you. The advisor has little to do with this part.

Your job is to stick to the budget, track your progress, and remain on track.

Step 7: Monitoring the Plan

The final step of the financial planning process is to monitor the plan. This includes reviewing the plan on a regular basis and making changes as needed.

Your goals and circumstances may change over time, especially if you’ve designed a long-term strategy.

You or the financial planner can make adjustments to ensure the plan is still relevant and effective.

Do I Need a Financial Plan?

Creating a financial plan may seem like a daunting task, but it’s an invaluable tool for reaching your financial goals. Plus, looking into the future can be exciting and motivating.

So, if you're wondering how to make a financial plan, follow the steps above.

Whether you’re saving for retirement, getting rid of debt, or planning to start a business, you need structure and discipline. A financial plan can provide it.

Wrap Up

The financial planning process can be difficult, but it's essential for anyone who wants to secure their future.

Take the time to map out your goals and stay on track to achieving them. By identifying potential obstacles early on, you’ll have the time to prepare for them.

Aleksandra Yosifova
Aleksandra Yosifova

With an eye for research, Aleksandra is determined to always get to the bottom of things. If there’s a glitch in the system, she’ll find it and make sure you know about it.