What Are the 7 Steps of Financial Planning?
The seven steps of financial planning start with getting to know your current financial situation and goals and end with continually measuring performance toward those goals and updating them as necessary.
Step 1: Understanding your Personal and Financial Circumstances
We’ll begin our financial planning process by asking you questions designed to help us get a clear picture of who you are and what you’re looking for. Some of the questions are qualitative and lead to a better understanding of your health, family relationships, values, earnings potential, risk tolerance, goals, needs, priorities, and current financial plan.
Some of the questions are quantitative and lead to a better understanding of your income, expenses, cash flow, savings, assets, liabilities, liquidity, taxes, employee and government benefits, insurance coverage, and estate plans.1
We may ask some open-ended questions to uncover necessary information to start the plan. This information may include a range of topics, from financial goals to feelings about market risk to dreams about retiring in the Caribbean or getting an RV.
We’ll also likely analyze the financial information you give us to ensure have a clear understanding of where you stand financially.
For example, if you’re working on retirement planning, some of the key information needed is your:
- annual income
- savings rate
- years until proposed retirement
- age when you are eligible to receive Social Security or a pension
- how much you’ve saved to date
- how much you will save in the future
- the expected rate of return on your investments (if you know it)
Step 2: Identifying and Selecting Goals
From there, we’ll typically use our experience to help you select specific goals to work towards, sequentially. They’ll ask clarifying questions to help identify those goals.
For example, we might ask you:
- “When do you want to retire?”
- “What financial goals do you have between now and retirement?”
- “Are you willing to accept a high relative market risk to achieve your investment goals, or will a conservative portfolio be a better option for you?”
Together, we’ll prioritize which goals are most important and help you to understand how to approach managing your finances given this information.
Step 3: Analyzing your Current Course of Action
Next, we’ll analyze your current course of action to see if it’s moving them toward their financial goals. If it’s not, we’ll identify alternative courses of action and let you know the advantages and disadvantages of each option.
Step 4: Developing the Financial Planning Recommendation(s)
After that, we’ll select one or more recommendations that we believe fit best in helping you reach your goals. We’ll evaluate each recommendation, considering:
- What assumptions were made to develop the recommendation
- How the recommendation meets your goals
- How it integrates with other aspects of your financial plans
- How high a priority the recommendation is
- Whether the recommendation is independent or needs to be implemented with other recommendations1
Step 5: Presenting the Financial Planning Recommendations
In this step, we’ll present the recommendations and explain the thought process behind the recommendations. This helps you make an informed decision about whether the recommendations are a good fit.
We believe that financial planning at its core is in fact personalized financial education and at every step, we hope to ensure you approach the changes to your life with your eyes open, knowing why you’re doing what you’re doing and what to expect as a result.
Step 6: Implementing the Financial Planning Recommendation(s)
Implementing the plan means putting the plan to work. But as simple as this sounds, many people find that implementation is the most difficult step in financial planning. Although you have the plan developed, it takes discipline and desire to put it into action. You may begin to wonder what may happen if you fail. This is where inaction can grow into procrastination.
At Progress Wealth Management, we believe good financial planners don’t just give the recommendation but make it as simple as possible for our clients to actually implement the changes to their finances that they need to in order to best reach their goals.
We’re happy to call brokers, help you fill out paperwork or even just be an ear to listen when life gets tough. Whatever we can do in order to ensure you’re
Step 7: Monitoring Progress and Updating
It’s called “financial planning” for a reason: plans evolve and change just like life.
Once the plan is created, it’s essentially a piece of history. This is why the plan needs to be monitored and tweaked from time to time. Think of what can change in your life, such as marriage, the birth of children, career changes, and more.
These life events may require new perspectives or changes to your financial plans. Now think about events or changes beyond your control, such as tax laws, interest rates, inflation, stock market fluctuations, and economic recessions.
We’ll work with you to ensure your plan is meeting your goals, and if it’s not, they’ll recommend changes.
Throughout each year, the monitoring process may require quarterly tasks which we’ll remind you of. Every client’s financial life is different so no two clients’ financial planning calendars are the same. We included an example below, however, for your reference. Not all clients want this much to do and we won’t require it so long as we’re doing what’s appropriate to help you avoid big mistakes.
The Bottom Line
Now that you know the seven steps of financial planning, you can apply them to any area of personal finance, including insurance planning, tax planning, cash flow (budgeting), estate planning, investing, and retirement. While you can do it yourself, professionals can provide invaluable advice and a neutral perspective on your finances. Visit our services page to learn more about what we can do to help you improve your life and reach your goals.
Whether you do it yourself or hire an advisor, remember to keep referring back to the steps as significant life or financial changes occur. You may also want to do what professional financial planners do and sit down and reevaluate your plan periodically, such as once per year.
Not enough detail? No problem.
Click here to request access to examples of the specific deliverables you’d receive by hiring us as well as a video tour of our planning platform and any other detail you’re looking for.
Alternatively, our initial consultations are at no cost and we’d be happy to answer any questions you might have. If you’d like to schedule an initial consultation, click here to view our availability, or alternatively, you can call us at 425.577.0660.