6 Steps to Follow When Doing Financial Planning

financial planning

You have probably wondered what financial planning procedure professional’s use for their clients. But what you do not know is that you can do most of what these pros do while at home. Here are the six steps for financial planning that you can follow to achieve financial success.

1. Define the Relationship 

If you are making the financial plan for yourself, you will be both the planner and the client. However, it is still important to identify and define the relationship that exists between the client and the planner. This is especially true if your partner is involved in the financial plan and they will have responsibilities in the implementation and monitoring of decisions.

2. Collect Data, Prioritize Goals and Determine Expectations 

There are many tools that you can use to start collecting your financial data. One such tool is Mint. It is straightforward to use, and it will make your data search process less hectic.
After you have your data, the next step you should take is to set expectations. During this step look at the goals, both financial and non-financial, that you have for your finances. Also, consider the number of times that you want to check out your finances. 
It is equally essential for you to consider personal life goals such as your retirement age, your healthcare needs, and your life expectancy. Regardless, prioritizing your goals is the most significant part of establishing your expectations. The rank that you create will be used throughout the planning process to govern how you will allocate funds.

3. Evaluate and Analyze Financial Status

If you are not a professional, you can start with the basics that will help you make progress on this stage. To find out where you stand financially, you can answer all or some of the following questions:
• Is your cash flow positive? 
• Do your cash flows have any obvious outliers? 
• What net worth do you have? 
• If you had any net worth or cash flow expectations, did they become a reality? 
• Are some of your goals within reach and others out of reach but having no implementation process? 
• Have you made a plan that can help you save to achieve your goals?

4. Develop the Recommendations for the Plan

You now have your ranked list of goals, and you have analyzed your current financial status. You are now ready to make a plan for your financial future. Your flow of cash can be mapped into four parts:
• Part One 
The first thing that you should do is figure out how you will spend the money that you have currently. You can do this by illustrating and organizing automatic transfers to the different savings vehicles of your choice. The trick is to take advantage of automation. 
Automation makes it easy because not seeing money coming into your spending account will not notify you that it is missing. Also, you can use services that will give you the chance to track all the investment money that you have in one location. These services will also take charge of depositing your savings automatically. 
• Part Two 
The second step of making your plan is creating a map with details of what you will do with your future money increases. Consider whether all your increased money will go to one savings goal or if it will be divided evenly between all the goals you have created. Also, ensure that you generate a plan in case you experience payment decreases. 
Moreover, ensure that you consider the possibility of reducing the potential to encounter a downside. You can find methods to avoid risks, or you can insure yourself. The advantage of buying insurance is that you pass on any risk to someone else. 
• Part Three 
Consider estate planning as your third step. Your estate comprises of everything that you control or that is in your name in a manner that adds you benefit. This is inclusive of material possessions such as cars, houses, and retirement accounts. 
Additionally, your estate includes your other unexpected possessions such as your pets. You can think about consulting with an estate attorney especially if you have a very complicated situation. This step is very crucial because you should ensure that you have an outlined plan in case of death or incapacitation. 
• Part Four 
The final step of the plan is considering the investments that you have. If you do not have any current investment, make sure that you make a plan that includes your future investment plans. There are two rules of thumb that you can use when investing: 
• If you want to choose between two similar investments, select the one that has lower fees. 
• Ensure that your investment is diversified. For instance, investing only in stocks is not diversified. Instead, invest in commodities, real estate, and bonds as well. 
Then, consider your risk tolerance, goals, and timelines. If you are already set financially, focus more on mitigating risks than creating wealth. If you are starting, then taking risks and making more investments will make sense. If you are close to retiring, select an investment that is perfect for you without being heavily leveraged.

5. Plan Implementation

To implement effectively, ensure that you do not lose momentum. At this stage, you can consider outside help from an estate attorney who can answer your questions. Make a weekly schedule to complete the small things and do it in a way that works for you.
Also, ensure that you are taking advantage of your employee benefits and anything else that is available to you. Remember to check your tax implications every time you make a decision and find ways to reduce taxes legally.

6. Process Monitoring

It is common to find areas in your plan that were incomplete, incorrect or areas that have changed due to uncontrollable outside forces. With every change, take the new information and use it to improve your initial plan appropriately. Have a reasonable review process and be vigilant in monitoring the process and everything will work out correctly.


The six steps are not easy, but they are achievable if you are willing to invest your time in creating your financial plan. However, always remember that it is more about your goals than it is about the process itself.

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