6 Steps in the Financial Planning Process

6 Steps in the Financial Planning Process

July 29, 2022

6 Steps in the Financial Planning Process

Too many people live each day without the clarity of a written financial plan. The problem is that not having a financial plan means you are “winging it” with something that is extremely valuable to you – your hard-earned assets.

When it comes to other things that are valuable to you, you plan it out.

Think about it.

With your time, you set 1, 5, and 10-year goals and daily to-do lists to be sure you are on track. Why? Because you don’t want to waste your time!

Going on vacation? You plan out what you are going to do, you budget in time for relaxing by the pool, and you make sure you get your Disney Fast Passes. Why? Because you do not want your vacation to end and feel like you wasted it.

However, too many of us do not do this with our finances. We let our paycheck go into the bank account and make daily purchases based on what feels right in the moment. In other words, we are not aligning our long-term goals with our short-term spending, and that short-term spending is preventing us from reaching those long-term goals (or at least slowing us down).

We start each of our client relationships with a heavy focus on how their investment strategy is going to play into their overall financial plan. It starts with their plan. If we can establish the plan first, it can provide a roadmap to help guide all of our other decisions.

Today we are going to look at the 6 steps of creating a financial plan. We should point out that implementing these steps becomes so much easier with professional guidance, along with high-end planning software that can help ensure you do not miss anything. That’s where we come in.

However, if you are just looking to get started on your own, here are 6 steps we recommend to create your own financial plan.

Step 1) Determine achievable goals

Your goals should be related to what you prioritize and value in life. They should be:

  • Reachable, given your current wages and future earning potential.

This is so you don’t get discouraged and fall off the wagon. You want your goals to be a good balance between expecting the best in yourself and reaching for the stars, but also realistic.

  • Quantitative, meaning you can assign a dollar amount to reach.

Avoid language like “save as much as possible.” Instead, say: Save $10,000 for a Europe trip. Or save $20,000 for your daughter’s wedding, or create a budget with $1,500 / month contributing to savings.

  • Trackable, so you can see your progress.

Keep track of how you are doing. If we are trying to lose weight, we check the scale often. Imagine trying to lose weight if you didn’t have a scale – it would be impossible to know if what you are doing is working!

Step 2) Assess the situation

Assessing the situation means gathering documents, logging into bank accounts, and understanding exactly what your assets are vs. your debts. You will want to gather a total picture so you don’t have rose-colored glasses on as you put together your plan.

There’s a great tool we have called Asset Map. It creates a one-page look at your entire financial situation. Our clients have found this tool incredibly helpful to be able to simplify and make better decisions.

Step 3) Understand what the risks (and opportunities) are

It can be tempting to want to stop after the first two steps. You know where you are, you know where you want to be. Let’s do it!

However, stopping after the first two would be a big mistake. You need to know what potential threats you face. What could knock you off track and derail your efforts?

People who successfully diet think ahead of time about what social situations they might be in coming up where they will have to say no to the homemade dessert. It makes it a lot easier to deal with potential headwinds towards your goals if you know what is coming so you can prepare.

Some of the risks you might write down can include:

  • Market and economic risk
  • The risk of needing the money early
  • Job loss
  • Unexpected expenses
  • Health issues
  • Insurance claims
  • Lawsuits
  • Inflation
  • Running out of money in retirement

Step 4) Develop your plan

Now that you have you know your goals, you have your documents in place, and you understand the risks and opportunities you face – now is the time to create a plan.

Creating a plan doesn’t have to be fancy. It can be typed up or hand-written on a piece of paper. The important thing is that the financial plan is written down so you (or others who you trust) can keep you accountable to your goals. This is the key to long-term growth. 

Your plan should have actionable steps towards the goals you established in step 1, and it should address the potential risks you identified in step 3. 

Step 5) … aaannd GO!

Step 5 is implementing your plan. Make decisions based on your plan. You now have a guide to help run your life from a financial perspective. This is powerful! You can refer to this guide daily. What are you going to eat for dinner? Take out? Sit down where you have to pay the wait staff? Will making this decision prevent you from reaching a goal?

Before we get to step 6, we want to make something clear. It might be starting to feel like financial planning is a total buzzkill meant to keep you from having any fun.

Remember this.

YOU are in charge of your financial plan. YOU are the one that is determining the things that are important to you. Maybe your financial plan is to have enough money each week to go out with your friends 2-3 times a week. That’s great if that is what you value! So write it down in your plan.

If you consistently find that you are not happy with having to stick with the plan, then maybe the plan doesn’t truly reflect your values. Your long-term goals and current desired lifestyle should align. There might be a little give and take and self-discipline that needs to happen, but the idea is that you control what that looks like.

Step 6) Review it periodically

The final step is to remember that you must review the plan occasionally. We recommend at least annually, maybe every six months. This will help remind you of what is written down and keep you on track.

It will also allow you to reset and realign based on how it is going so far. Maybe you are finding that you set your goals too high or too low. Should you revise your goals based on how much you were able to save in the first couple of years?

Maybe you had an unexpected life event happen, the death of a loved one, an illness, or a job loss. Maybe you had an unexpected money event happen, like an inheritance, settlement, or lottery winnings. Those can be great times to reassess and readjust your goals.

Financial planning is powerful, but only if you allow it to be. Having a written guide you can refer to in order to make everyday financial decisions with confidence is invigorating, and seeing your savings balance grow towards your goals will be energizing.

Why Work With a CFP®?

At Summit Wealth Group, our CERTIFIED FINANCIAL PLANNERTM professionals not only offer customized, holistic financial planning services, but we lead with financial planning. We believe it is the best way to achieve what you want in life and to understand the things you have control over.

Most financial advisors only offer financial planning if they are managing the client’s assets. We see it differently. We believe everyone should have access to the highest quality financial planning, regardless of how much money they have in their retirement or investment accounts. This is why we have decided to offer financial planning to anyone who would like to contact us for this reason for a set fee based on the complexity of your financial situation. 

Not having to worry about the ups and downs of the market, but instead keeping your mind on things you can control, like your spending habits, takes the pressure off. If you have a need for financial planning, we invite you to reach out – even if you are not a client of ours.

Contact Summit Wealth Group for a complimentary consultation and begin your customized financial plan today! Schedule a Meeting