Key Steps of Financial Planning


If you want to learn how to plan your finances, then why not take cues from professionals? After all, there are specific financial steps certified financial planners must take in their service to clients, including understanding their goals. The good news is that these are steps you can apply to your own financial planning. Let’s explore the key steps of financial planning.

The Issue

As standard practice, there are seven steps that CFPs must take in assisting clients and making recommendations. Adherence is required by the CFP Board of Standards’ Code of Ethics and Standards of Conduct. As part of their certification, all financial planners pledge to uphold Code standards. If you want to act as your own nonprofessional financial planner, you can use the following steps for any area of personal finance, including budgeting and estate planning.

What is Financial Planning?

It’s the process of assessing an individual’s financial situation and establishing a plan to help them achieve their short- and long-term money objectives.

The Key Steps of Financial Planning

Understanding the Client’s Personal and Financial Circumstances

The CFP starts the planning process by gaining a clear understanding of their client and their client’s goals. During questioning and open-ended conversation, they find out their income, cash flow, savings, and expenses. They also learn about their client’s assets, liquidity, liabilities, insurance coverage, estate plans, and employee and government benefits.

The CFP will also want to know about their client’s health and family life, values, goals, needs, priorities, risk tolerance, etc. In addition, advisors will look over financial information to be certain they have a proper grasp of their client’s circumstances. If their client has sought debt relief, for instance, they’ll want to learn more.

Identifying and Selecting Goals

It’s the CFP’s job to help clients identify their goals. Sometimes clients have an idea of what they want but aren’t sure of their options. To help them hone their objectives, they may ask about time horizons, whether they’re open to high markets, etc. Then the goals will be prioritized.

Analyzing the Client’s Current Course of Action

The planner will next examine their client’s current course of action to determine whether it’s helping to move their client toward their goals. If that’s not the case, the CFP will identify and present other courses of action and help their client understand the pros and cons for each.

Developing the Financial Planning Recommendation(s)

Here, the advisor chooses at least one recommendation that they have determined will help their client meet their goals.

Each recommendation is evaluated, considering things like how it integrates with other financial plan aspects, and how it meets the client’s goals. It also considers the assumptions made to create the recommendation, how high a priority the recommendation is, and whether it must be implemented with other recommendations.

Presenting the Financial Planning Recommendation(s)

Here, the advisor presents the recommendations and how they came to formulate them. The latter is so the client knows whether the recommendations are suitable.

Implementing the Financial Planning Recommendation(s)

This is where the plan is put in place – the most challenging step of all. Clients have the roadmap in hand, sure, but following it is something else altogether. To be sure, implementation takes desire and discipline.

Monitoring Progress and Updating

Life happens and things change. There may be career changes, childbirths, marriages, etc. Therefore, the plan will at some points need tweaking. There may even be wholesale plan changes. Then there are possible factors such as stock market volatility, economic downturns, tax laws, inflation, etc.

The CFP will see whether the plan is indeed meeting your objectives. If it isn’t, they’ll recommend alterations.

So, if you don’t want to hire a CFP, you can use these key steps of financial planning as a template for your situation. Just make sure you revisit your plan periodically to make sure you’re on track with your goals. If you have credit card debt that you need help with, we recommend contacting Freedom Debt Relief.