Six Key Financial Planning Process Steps

The key to successful financial planning is making sure that your spending and saving habits match your goals and priorities. Since your goals and priorities are unique to you, your financial plan should be unique to you as well. But, as your life changes, your goals and priorities will likely change as well. Therefore, your financial plan now may look very different from how it has in the past or how it may look in the future. Though each financial plan is different, everyone can use the same steps to create one. This may feel complicated or overwhelming, but the following these six key financial planning process steps can simplify the task. 

Evaluate Where You Are

Before you can create a plan, you first need to understand where you are. To do this, you’ll need to gather information to identify your current financial situation. Not only do you need to pull data regarding income and expenses, but you should also know how much you have invested and where. Make sure you take the time to do this step correctly, since it’s the foundation for all future steps. If you don’t know exactly how much you’re spending, don’t guess. Track every expense for the next one to two months so that you have an accurate number. 

Know Where You Want to Go

This step is about evaluating your goals and priorities and considering how your spending lines up with them. Write down your goals and priorities, and put them in order of importance. This step is unique to you, and it should be about more than simply saving a certain amount.

For example, your number one goal may be paying off student debt, but in the last year, you’ve gone on multiple long and lavish vacations. Or, you may say that your number one priority is spending memorable time with your family, but you haven’t gone on a family vacation in the last two years. In both of these examples, your spending isn’t lining up with your goals or priorities. 

Create a Plan 

This is where you figure out how you’ll get from where you are to where you want to go. If you’re not spending money in ways that line up with your goals or priorities, then you need to adjust accordingly. Whether it’s saving more so that you can retire early, putting more money towards debt, or setting up investment accounts for children, you need to keep a few things in mind. Make sure your plan is realistic, has actionable steps, and that periodic milestones are built in. 

Implement the Plan

Creating a plan is the easy part—the difficult part is implementing it. The good news is that if you’ve created a plan that helps you achieve your goals, it’ll be considerably easier to implement.

Establishing roles can also help simplify the process. This doesn’t just apply to spouses, it also applies to any adult relationship where finances come into play—parents, children in college, etc. Make sure you’re in agreement on how spending is tracked, how investments are made, and what the budget looks like. Everyone should be involved and aware of the financial plan, but knowing who is responsible for certain items can help set expectations and assist you in achieving your goals.

Expect the Unexpected

No matter how well thought out your plan is, unexpected events are almost certain to occur. Walk through how you would handle various unexpected events both positive and negative. How would a large inheritance or large salary increase affect your plan? What would happen in the case of the death of a spouse or the loss of a job?

This is where reviewing insurance options may be a good idea. It may be the most difficult step, but it’s also one of the most importance. Though the conversations in this step may be difficult, they often help bring peace of mind. 

Monitor and Review Consistently

You’ve created and implemented a plan that matches your goals and priorities. You’ve also prepared for unexpected events that could derail your plan. But you’re not finished. The final step is about periodically checking in and seeing if your plan still works for you.

If a major life event occurs, such as the birth of a child or retirement, your priorities and goals may very well have changed. In these instances, you’ll likely need to update your financial plan accordingly. 

Consider Working with a Financial Advisor

Six key financial planning process steps are necessary for creating a high-quality plan. This includes honestly assessing where you are, evaluating your priorities and goals, and creating a plan that supports them. If you’re looking for further assistance or more detailed advice, consider working with a professional from Good Life Financial Advisors. Our team looks forward to helping you get your finances back on track!