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.
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.
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 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.
Step 2: Identify your goals and expectations
As you begin analyzing your financial data and current state, you can start building your 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.
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.
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. Some questions are “What’s your current net worth?”, “Are you cash flow positive?”, “What’s your net worth?”, and “What is your debt situation and what kind of debt is it? “
Step 4: Developing the financial planning recommendation
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.
Set up where your money is going and how much. This can be for your savings, bills, and investments. Look at how you can increase your streams of income, improve your salary, and how you’ll use that income. 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.
Step 5: Reviewing the financial planning recommendations
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.
Step 6: Implementing the financial planning recommendations
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.
Step 7: Monitoring progress and update as need
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.