What Are The 7 Steps In The Financial Planning Process?

By Todd Kunsman

Money Basics

Published on

Updated on

The financial planning process is important to understand as it can help you create efficient action items to better your money. 

This series of steps will be your go-to strategy that outlines how to budget, where to invest, and what other assets can help you achieve your financial goals.

Oftentimes you might be unsure of where to start with a plan due to a lack of know-how and might want to work with an expert.

While you certainly can work with a financial planner, you can improve your finances on your own too. 

If you’re interested in DIY finance, then you can follow the basic seven steps in the financial planning process below.

What Is A Financial Plan?

A financial plan is a personal document created to help assess your current financial situation, create various money goals, and help you make better financial decisions going forward. You can create this plan on your own or work with a certified financial planner. 

And according to the CFB Board, the financial planning process is defined as:

A collaborative process that helps maximize a Client’s potential for meeting life goals through Financial Advice that integrates relevant elements of the Client’s personal and financial circumstances.”

Why Is a financial plan Important?

During the financial planning process, you start to learn quite a bit about your overall financial health. And it’s possible that you might not have even realized you were in rough shape without building your personal plan. 

Here are a few reasons a financial plan is important: 

  • Helps you understand your income
  • Understand your current cash flow
  • Learn how to build more capital
  • Improve your family’s finances 
  • Helps you start building better investments 
  • Maximizes your budget and spending
  • Creates steps for you to achieve your money goals 

The 7 Steps of the Financial Planning Process

The seven steps of the financial planning process were created by the CFB Board. And the goal of these steps is to help financial planners have a guideline to their process of working with clients. 

But the thing is, if you want to teach yourself about personal finances, you can follow the steps yourself! Below is a slight variation to the personal financial planning process when you aren’t a certified planner.   

7 Steps of the Financial Planning Process:

  1. Understand your personal and financial circumstances
  2. Identify your goals and expectations
  3. Analyze your course of action and evaluate the status
  4. Developing the financial planning recommendations
  5. Reviewing the financial planning recommendations
  6. Implementing the financial planning recommendations
  7. Monitoring progress and update as need

Step 1: Understand your personal and financial circumstances

Typically, a financial planner will get to learn and understand everything about your finances, family, goals, etc. But if you are DIYing your plan, it’s on you to understand where your personal finances and current situations stand. 

Analyze everything from your money mindset, to what your current lifestyle is, and what your goals will be. All this information that you write down and master will be used to build your financial plan. 

Start using some simple tools like Personal Capital or Mint to get some financial reports of your finances. Or even something simple like a budget calendar to get you started. 

Step 2: Identify your goals and expectations

As you begin analyzing your financial data and current state, you can start building your goals. This can be a more interesting part of the financial planning process as you can think big! 

Of course, you want to have short-term and mid-term goals as well, but what are some of the long-term goals you hope to achieve? 

You’ll also want to establish your expectations in this step. Things like how often you plan on checking-in with your plan, what you hope to accomplish over set periods of time, identify future costs and living situations, and other non-financial goals. 

All of these goals and expectations can help you determine which aspects are most important and where you may need to focus your money and efforts. 

Step 3: Analyze your course of action and evaluate the status

A majority of your financial plan involves you analyzing your current status and adjusting as needed. Whether you are already on a good path financially or not, you’ll be able to identify areas that can use a boost. 

Start with some simple basic questions about your finances and then expand as you get a good idea of what’s going on financially. 

  • What’s your current net worth?
  • Are you cash flow positive? 
  • What’s your net worth?
  • What is your debt situation and what kind of debt is it? 
  • Do you have goals that you can reach or ones that you can’t reach without changes? 
  • What is your plan to save money and invest today? If you have one?

Step 4: Developing the financial planning recommendation

Now we get to the fun part of the plan!  In step 4 of the financial planning process, this is where you’ll be putting action items in place to crush your goals and improve your financial health. 

There are different areas of focus here, pending what you personally want to accomplish. But here are some places you can start. 

Keep in mind: there are many variables to consider that your plan will develop and evolve over time. But always keep in mind your risk tolerance and what your goals are throughout the plan. 

  • Set up where your money is going and how much. This can be for your savings, bills, and investments. You can use a free platform like Personal Capital which can set up automated deposits, track your investments, and see your net worth. 
  • Look at how you can increase your streams of income, improve your salary, and how you’ll use that income. Is that through side hustles? Job hopping? Asking for raises? And how will you put that money to work? But also, understand what action items you’ll take if you lose your job, income decreases, or an unexpected costly emergency creeps up. 
  • Start planning for other areas of finances that might not be so fun to deal with. Think about estate planning, especially if your assets get complicated and your family is growing. Additionally, it might be worth thinking about life insurance, and getting a free quote online from Bestow can be a good first step. These items help organize where things in your estate will go and protects your family if something were to happen to you. 
  • Plan for how you are going to be investing your money. If you don’t have much cash to work with yet you can use platforms like Acorns and Stash to start investing in stocks with a few bucks. Your investing style can be based on your personal needs, risk tolerance, and goals. You can keep it simple, look for low fees, and diversify. With Stash, you can start investing with just $5.1 After completing the registration process of opening a Personal Portfolio on Stash, deposit at least $5 into your Personal Portfolio and Stash will give you an additional $5.2 Throughout your journey, you can look into diversifying beyond stocks too, like real estate, bonds, collectibles, commodities, etc. 

Step 5: Reviewing the financial planning recommendations

So you have spent some time with your plan and putting action steps together. Since time may have passed and you might not recall everything, it’s a good time to review everything. 

Naturally, you don’t want to get stuck in a cycle of constant tinkering but there might be things you want to adjust before implementing the plan. Talk with your spouse or significant other about the plan, get their insights or feedback, and ensure everyone is on the same page. 

If you are really unsure, you could consult with a financial planner to go over your plan or see if there are other recommendations you might be missing.

In my personal plan when I got started, I set it aside for a few days and then looked at it with a fresh mind. This allowed me to think more clearly and then analyze my plan before getting started. 

Step 6: Implementing the financial planning recommendations

After you have done all that previous work, your next step in the financial planning process is to implement everything you pieced together. This might be one of the more challenging steps (besides first getting started). 

Typically, most people get gung-ho at the start, but progress can fade as it is easy to slow down or skip something. Then you tell yourself you’ll come back to that step but in reality, that cycle continues. Flash forward to a few weeks or months that pass by and you’re wondering where you went wrong! 

Pending the actions you will be taking, you will certainly need accountability. Create a budget calendar for yourself, set days for certain financial tasks or reminders, connect with a financial advisor or estate attorney, etc. 

Also, be sure to explore your employee benefits if you work for a company. Many larger organizations offer classes, resources, or meetings that cover health insurance, retirement planning and investing, and specifics about your 401k, 403b, or other investment accounts. 

The main goal with step 6 is to not set your expectations too high and start off your plan in attainable doses, which can keep you focused and motivated when you complete a task. 

Step 7: Monitoring progress and update as need 

While there are only 7 steps to the financial planning process, they do take some time to piece together. And even when you reach the last step, your work is not done! In fact, your plan may never officially be complete until you have hit every goal. 

Additionally, over time your priorities and situations change, which will require you to pivot your plan or alter steps a bit. You might have created a financial plan with specific steps in the beginning, but your life can throw curveballs at you where your plan might not work as is anymore. 

You’ll discover areas in your plan that you had the wrong assumptions or thoughts. And you’ll find parts of your plan may be incomplete, you had life-altering situations, or your plan has become a bit outdated. It’s completely normal and is expected to happen during the lifetime of your plan. 

Just ensure to continue the review process of your plan on a recurring cadence, which keeps you informed of what may need updating or can change. 

Should You Hire A Financial Planner? 

As you can see above, there is plenty to do when it comes to the financial planning process. But it is entirely possible for you to succeed on your own! 

However, there are a few reasons why you might want to consider hiring a financial planner:

  • You would feel more comfortable having someone you can rely on for expert advice when you need it.
  • Researching and digesting financial information is intimidating to you and prefer to avoid making mistakes.
  • You need someone to hold you accountable for your financial plan and your progress. 
  • You can get quick answers to all your money questions, without having to struggle through contradicting information online. 
  • Your free-time is limited due to work and family commitments that you won’t have much time to build a plan on your own. 
  • Currently, you own many appreciating assets and have a high net-worth where you need advice on how to best protect your finances. 

If you are ready to work with a financial planner, you can use the CFB Board’s search option on their website. You’ll ensure you are working with someone who is certified that followed the proper education, experience, and ethical standards. 

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