The Financial Planning Process: A Step-by-Step Guide

Do you know your cash flow? Are you on track for retirement? Is your emergency fund fully stocked?  If any of those questions give you pause, it might be time for a financial plan.

The CFP Board has developed a step-by-step process for providing financial planning.

In this guide, we’ll unpack all the steps you can expect if you hire a professional to create a financial plan for you. Or you can use these steps to create your own financial plan like the pros.

7 Steps of the Financial Planning Process

Here are the seven steps that CFP professionals are required to follow when building financial plans for their clients.

  1. Review your financial situation
  2. Identify your financial goals
  3. Analyze your current course of action
  4. Create financial planning strategies
  5. Review the recommendations
  6. Implement the financial plan
  7. Monitor your progress and update your plan accordingly

Step 1: Review Your Financial Situation

Starting out, the planner will introduce him or herself, go over the financial planning process, and ask you questions to better understand your personal and financial circumstances.

They’ll ask questions about your health and family circumstances and, of course, financial questions about your income, expenses, savings, and investments.

Be prepared to provide information about your retirement accounts, brokerage accounts, insurance coverage, and any debt you owe.

Your advisor will also go beyond the numbers and understand your goals, time horizon, and risk tolerance.

The purpose of step one is for the planner to obtain all of the information they need to give you relevant financial advice for your specific situation.

Tips for the DIY planners

  • Get organized. Calculate your net worth (all of your assets minus your liabilities), look at your credit card bills and bank statements, examine your retirement savings, and take stock of your emergency fund, then go over the different types of insurance you have.
  • Ask yourself open-ended questions about money. What are you doing right when it comes to money? What could you improve? How do you feel about investing in the stock market? What are your concerns about money? What do you wish you were doing differently when it comes to money?

Step 2: Identify Your Financial Goals

After spending time analyzing your personal and financial situation, your planner will help you identify short-, medium- and long-term money goals. These could include: building an emergency fund to cover six months’ worth of expenses, saving enough to put a 20% down payment on a home, opening a 529 savings plan, or reaching your “retirement number,” whether that’s $750,000, $1 million or more.

In addition to coming up with specific goals, you’ll discuss timeframes and identify exactly when you want to achieve each goal by.

You and your planner should agree on your goals and timeframes. This is very much a collaborative step. It’s also a crucial part of the financial planning process as your financial plan will revolve around these goals.

Tips for the DIY planners

  • Come up with three to five money goals. Think about what you want your life to look like in five, 10, or 20 years. Your goals should excite you. They should also be specific. For example, if you want to own a home, decide how big of a down payment you’ll need and exactly when you want to buy.
  • Write your goals down. This will help make them feel more real. Write them down and revisit them frequently. It’ll help you stay on track and keep you excited about the process of achieving them.

Step 3: Analyze Your Current Course of Action

After you’ve agreed on your money goals, your planner will spend time looking at what you’re doing currently—how much you’re saving, how you’re putting your money to work, what your tax strategies are, etc.

They’re looking to see if you’re maximizing your potential to reach your money goals or if there’s room for improvement.

Chances are, you could be doing at least one thing better, and that’s when your planner will start considering alternative courses of action.

Tips for the DIY planners

  • Review your current plan. What financial decisions are you already making that will help you reach your money goals? Do you automatically send money from your paycheck to your retirement account? Do you have separate savings accounts set up for your specific savings goals? Do you have a system for tracking your income and expenses? How are you tackling any debt you owe?
  • Write it down. List all of the money-related strategies you’re currently using, from tracking expenses to setting up automatic contributions. If you’re not doing anything, that’s okay. In the next step, you’re going to start taking action.

Step 4: Create Financial Planning Strategies

Like step three, step four is less involved on your end. During this step, the financial professional will spend time coming up with one or more recommendations that they believe will maximize your potential to reach your money goals.

Depending on your financial situation, these recommendations could relate to cash flow planning, tax planning, retirement planning, investment planning, or estate planning.

Tips for the DIY planners

  • List strategies that could help you achieve your money goals. Maybe you don’t understand your cash flow and need a better budgeting system, which could mean downloading an app like YNAB or setting up a spreadsheet to track your expenses. If you need help with your investments, using a robo-advisor, or a self-directed investing platform could be a good solution. If you have questions about your employer-sponsored retirement plan or other employee benefits, HR might be able to guide you.

Step 5: Review the Recommendations

Once your advisor has come up with a couple of recommendations, they’ll present them to you. They’ll explain all of the information they considered when developing the recommendations and why they’re the right move for you specifically.

Make sure you fully understand what they’re suggesting and why it’ll be beneficial to you. Ask questions about anything that’s confusing so you can make the most informed decision. Ultimately, it’s up to you to decide if you want to implement their plan.

Tips for the DIY planners

  • Go over the list of strategies you created in Step 4. Highlight what you think are the most important courses of action for you to take. You’ll focus on those when you start implementing your plan in the next step.

Step 6: Implement the Financial Plan

This is arguably the most important step—you can plan all you want, but if you don’t execute your plans and make actual life changes, you’ll never progress.

Your advisor will establish exactly what you need to do to implement the plan and how they’ll support you. And if there are any third parties (like an insurance company), your advisor will explain how they fit into the plan, too.

Tips for the DIY planners

  • Starting small is better than not starting at all. If all you can afford to save for retirement is 1% of your paycheck, start there. Then, bump it to 2% after six months or a year. The same goes for investing—if you can only save and invest $10 a month, start there. Thanks to micro-investing apps like Acorns and Stash, anyone can start investing with just a few bucks. It’s infinitely better to start small than not start at all.
  • Make everything automatic. Executing your financial plan and building wealth don’t require much effort if you make your plan automatic. Have a percentage of your paycheck go straight to your retirement savings account, so you never even see this money. If you’re building an emergency fund, set up a recurring, monthly deposit from your checking account to your emergency account. You can even set up autopay for your credit cards and other bills so you never miss a payment.

Step 7: Monitor Your Progress and Update Your Plan Accordingly

Financial planning is an ongoing process, spanning decades. You and your advisor will meet regularly, at least once a year, to monitor your progress and make adjustments.

They’ll also want to know about any significant personal or financial changes (if you get engaged or married, if you get a divorce, if you get a new job, etc.) that could affect your financial future.

Communication is key to successful financial planning. Your advisor will let you know how they intend to communicate with you and how often, but don’t hesitate to reach out whenever you have questions or need help with decision-making.

Tips for the DIY planners

  • Revisit your goals constantly. Put your goals somewhere you’ll see them daily. Following through on your plan is the hardest part, but if you revisit your goals often and think about what it will feel like to achieve them, it’ll motivate you to keep plugging away.
  • Get an accountability buddy. Have someone, either your partner, friend, or roommate, hold you accountable. Share some of your goals with them and tell them exactly how you plan to achieve them. When you involve someone else, you’ll have extra motivation to follow through.
  • Reevaluate your finances at least once a year. It’s a good idea to do an annual financial tune-up and go over some of the elements of step one, like your income, savings rate, expenses, investments, and debt. How have you improved? Has your net worth increased? If you’re doing a good job sticking to your plan, monitoring your progress can be inspiring and motivating. If you’re not sticking to your plan, it’ll be a good wake-up call.

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Frequently Asked Questions

What is a financial plan?

A financial plan is an in-depth assessment of your current financial situation and outlook that factors in your cash flow, savings, investments, and debt to provide strategies to help you meet your short-term and long-term goals.

The financial planning process is an ongoing one that requires time and dedication. You can create your own plan or you can hire a financial advisor to make one for you. If you go the latter route, it’s smart to work with a certified financial planner (CFP).

What are the basics of financial planning?

Some of the fundamentals of financial planning are building an emergency savings fund, budgeting, paying down debt, and saving for retirement.

These are important areas of your financial life that can serve as a great starting point for a financial plan.

What Is the difference between a financial advisor and planner?

A financial planner is a type of financial advisor who provides a holistic financial plan for clients based on their current situation and personal finances to help them reach their goals.

Meanwhile, there are several different types of financial advisors that can provide a variety of services to help clients manage their money such as investment advisors.

How much does a financial plan cost?

According to a Kitces survey of financial advisors, the average financial plan costs $2,400. The cost can vary based on the services a financial planner offers and their fee structure.

Some advisors charge a flat hourly, annual, or per-plan fee, while others who help with your investment strategy may charge a percentage of your assets under management.

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