Financial planning can give you room to be proactive so that you are not scrambling when issues like inflation costs, early retirement and medical crises appear. 

Financial planning refers to the practice of managing your finances. As part of your financial planning process, you can evaluate your current financial situation, identify your goals, and take actionable steps toward budgeting, investing, and saving. Best of all, financial planning can help you work toward meeting your lifetime milestones. 

If you do not currently have a financial plan in place, it is never too late to start. Financial planning can require time and energy, but it does not have to be stressful. In fact, your planning process can be smooth and organized — especially if you have a CERTIFIED FINANCIAL PLANNER™ professional to help.

Why is financial planning important? 

Only about 30% of Americans currently have a financial plan. Whether you want to save for retirement, invest in stocks, organize your estate or set up your new business for success, financial planning may be able to equip you to accomplish your goals. 

Financial planning is holistic and multifaceted. Rather than focusing on a single aspect of your finances, a good financial plan takes into consideration your goals and responsibilities. As a result, you can create a realistic picture of your future in which you maximize your assets, meet long-term and short-term goals, and manage your wealth.

What are the 6 steps you need to take in your financial planning process? 

A solid financial planning process involves six steps. While working with a CERTIFIED FINANCIAL PLANNER™ professional, these six steps can help you analyze your personal cash flow and outline tangible steps toward your financial goals. They can also help you visualize a clearer financial future for both you and your family. 

The six steps of the financial planning process include the following: 

1.Meet with a financial planner.

Working with a CERTIFIED FINANCIAL PLANNER™ professional can help you achieve a better understanding of your financial situation and the steps you need to take to reach your goals. A major reason why CFP® professionals can be so crucial is that they can customize your financial plan to your life and preferences. During one-on-one sessions, your advisor can tailor their questions and resources to your background, career, and family life. In addition, working in a one-on-one environment with your advisor can allow you to be open and honest about your financial concerns. 

Before you meet with your financial planner, try to gather information relevant to your financial situation. Documents that include your income, debt payments, monthly budget or tax returns can help give your financial planner a clear idea of how to develop your plan. The more information you provide, the more your financial planner can customize a financial plan specific to your assets and obligations. The baseline information and documents you bring may include: 

  • Your personal information, such as your age, marital status, income, tax filing status and children
  • Your assets, including whether you own a home or car
  • Your investment portfolio and retirement plans, if any
  • Your debt repayment plan, if any
  • An estate plan, if already established
  • Your personal insurance policies

If you are unable to gather a certain document in the above list, such as your estate plan, that’s OK. Your advisor can encourage you to complete them as a major goal of your six-step financial planning process.

2. Identify your financial goals.

Once your financial planner knows who you are, what you do and what you need, they can discuss your goals with you. Discussing these goals ahead of time can help your financial planner design a plan that maximizes your financial wellness throughout the six-step financial planning process. Some examples of tangible personal financial goals can include:  

  • Pay off student loans by this time next year. 
  • Set up a 401(k) or other retirement plan by the next meeting.
  • Save up for a down payment on a house within six months. 
  • Pay off the car in two years. 
  • Give a certain amount of money to charity every year.

You should be as transparent as possible with your financial goals, making them honest yet realistic. For example, if you want to open a restaurant, pay off your student debt or start a new degree, you should communicate that goal to your financial planner. Your financial planner can help you evaluate the feasibility of your financial planning goals in Step 3. 

3. Work with your financial planner to evaluate your finances.

To move forward with the six-step financial planning process, your financial planner will need to analyze your current lifestyle and how it can accommodate your financial goals. For example, if you are in debt yet plan on starting a business, your financial planner may recommend a plan in which your debt is paid first. 

Since everyone’s current financial situation is different, your financial planner will tailor your plan according to what you are currently spending and hope to spend in the future. They may perform a cash flow analysis to determine how much of a positive net flow you currently enjoy and use that information to evaluate where you stand in relation to your six-step financial planning goals.

4. Develop your plan.

Using the information you provided in your initial session, the goals you identified in Step 2, and data surrounding your current financial situation, your financial planner can now work with you to design a plan. This plan should be realistic, considering your doubts and concerns. Your financial plan may also include solutions to maintaining and growing your wealth steadily over a long period of time, such as through a retirement fund.

5. Implement your plan.

Now you must enact the plan you and your financial planner have been working on during this six-step financial planning process. As a result of your hard work, you can observe what parts of your plan are yielding results and which do not seem to be benefiting your financial situation. While you may not be able to see your results right away, you should speak to your financial advisor if you have any reservations or concerns. 

6. Review your progress and continue discussions with your financial planner.

Once your financial plan is in place, you will want to make a point to keep track of your progress and how close you have come to meeting your goals over a certain period of time. You can keep track by paying close attention to your monthly cash flow since you implemented your financial plan. For example, after reviewing your results, do you feel that you need to direct more of your money to your savings or to your debt repayment plan? Observing where your money goes can help you stick to the short- and long-term plans you made with your financial advisor.

It is important to remember that fine-tuning your plan may be necessary and can be a natural component of your six-step financial planning process. You can speak to your financial advisor if you want to make any adjustments. In turn, your financial planner can advise you to adjust your plan or your financial goals if they do not seem fruitful. 

Besides the above six steps, how else can you improve my financial planning process?

In addition to following the above six-step financial planning process, you will want to make other smart financial decisions to ensure that your finances are protected. As your assets and your financial responsibilities grow over time, you can: 

  • Develop your emergency fund — Most financial planners advise that you have at least three to six months of living expenses saved in the case of an emergency. Make sure that the amount of money in this fund is congruent with inflation and today’s living expenses. 
  • Increase contributions to your retirement accounts Retirement planning is a lifelong process that can help you establish a comfortable life when you are older. The more money you place into a retirement account, the more you can feel at ease knowing that your current lifestyle can be maintained in the future. One of your financial planning goals may be that you want to contribute more to your retirement fund. Speak to your financial advisor to learn about your retirement planning options and how contributions can help you save on taxes now.  
  • Make sure your insurance policies are up to date — Insurance can protect your financial stability. You should make sure that your life, car and home insurance plans match your financial goals as well as protect your family from unexpected difficulties. If you are not sure if you need to purchase a certain insurance policy, consult with your financial advisor.  

Talk to a ProVise CFP® professional about how to start the six steps in financial planning

The six-step financial planning process does not have to be stressful. At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about the six-step financial planning process? Contact ProVise today to schedule a complimentary consultation.