Creating A Financial Planning Process For Yourself

financial planning process

Having a solid financial planning process is the first step in achieving your financial goals.

The great news is that you don’t have to figure out a process on your own. Instead, you can leverage the same steps that financial advisors and Certified Financial Planners (CFPs) use to create financial plans for their clients.

Before we discuss creating your own financial planning process, you’ll need to know what a financial plan actually is.

What is a financial plan?

A financial plan is a document detailing a strategy to reach your future financial goals.

Financial plans take into account information about your assets, debt, and other relevant data to assess your current financial situation.

With this information, you or a financial planner can create a plan to get to where you want to be in the future.

Why is it important that I have a financial plan?

A financial plan lays out a clear path for you to follow to reach your future financial and life goals. It not only lays out a plan, but it is used to track your progress and identify when adjustments need to be made.

Having a written plan increases your likelihood of reaching goals and helps you prepare for the future.

You can create your plan with the help of a professional or do it on your own.

What is the financial planning process?

If you choose to create a plan yourself, I recommend using the 7-Step financial planning process used by Certified Financial Planners (CFPs) and advisors.

This financial planning process is a standard method for creating a financial plan. This process helps you evaluate your financial situation, identify your goals, create a strategy, and monitor your progress.

Steps in financial planning

Here are the 6 key steps in financial planning that you can leverage towards creating your own plan.

1. Understand your financial circumstances

Before you can create a plan for your future, you need to know where you are today. To do so, you’ll begin by collecting current financial information.

Here’s what you need to gather to do an effective analysis of your financial state:

  • Income and tax information
  • List of assets and their value (Ex. savings accounts, emergency fund, retirement & other investment accounts, education savings, real estate property, etc.)
  • List of debt and the amounts (Ex. mortgage, car loan, student loans, credit cards, etc.)
  • Insurance plans
  • Credit report and score

This can be a lot of information to compile, so it’s important to be organized. A great way to organize your financial records is by putting it into a single digital or physical folder.

2. Identify and select goals

The next step in the financial planning process is to establish your financial goals. What do you want your financial situation to be in the future?

Your goals should be separated into short-term goals, mid-term goals, and long-term goals. These are things that you would like to accomplish within 12 months, 1-3 years, and more than 3 years, respectively.

Ultimately, your goals need to align with what you want your life to look like. Without clarity on what you really want, you won’t be able to create relevant or worthwhile goals.

To help you get clear on what you want, ask yourself these questions:

  • At what age do I want to retire?
  • How often would I like to travel?
  • Do I want to get married?
  • Do I want (more) children?
  • Will I need to take care of aging parents?
  • What do I want to be able to give to charity/philanthropies?
  • Do I want to start a business?
  • How much risk am I comfortable with?

These questions are just a starting point for understanding what it is that you really want to achieve in life.

While developing your goals, it is also important to consider your personal preferences, such as your risk tolerance. This will play a role in the plan that you develop.

Once you’ve answered those questions, you can begin writing down goals that will help you achieve your desired lifestyle.

Some examples of goals that you may set include:

  • Paying off debt
  • Creating an emergency fund
  • Saving for retirement
  • Getting life insurance
  • Drafting an estate plan

In the subsequent steps, you will assign a timeline and action items to accomplish these goals.

3. Analyze your information & data

With your financial information in hand, your next step is to analyze your data.

When reviewing your information, you should seek to answer the following questions:

  1. What is my net worth?
  2. How are you doing currently when it comes to managing your money? (Ex. Budgeting, automated savings/investing, etc.)
  3. What do you have in cash, savings, and investments?
  4. Do you have life insurance?
  5. Do you have an estate plan?

Answering these questions will give further insight into your finances and what you are currently doing to reach your goals. It will also reveal gaps that you will need to address when creating your plan.

4. Create a plan

The preliminary work that you have done so far all leads to this step—creating a financial plan. This is where you will detail exactly what you need to do to accomplish the goals that you established in step 2.

A few assumptions are necessary to create your plan. For instance, you will need to assume a rate of return for your investment goals and make assumptions about your future income.

Though assumptions are necessary to develop your initial plan, you will make adjustments as time progresses and you gather more information.

Financial calculators are easy-to-use tools that can break down your goals into monthly or yearly actions. They can be used to determine how much you should save each month to reach your savings, retirement, and even debt payoff goals.

Your plan doesn’t have to be complicated. Simply write down what you need to do on a weekly, monthly, and yearly basis to reach your goals. Check out our breakdown of a financial plan example.

5. Presenting your recommendations (to yourself!)

If you were working with a financial professional, at this stage your financial plan recommendations would be presented to you. During this discussion, you'd learn how the plan was developed.

If you are creating your plan alone, this is still a step you can take by reviewing the plan you've created before you start taking action.

You want to make sure that what you plan to implement from your financial plan is in line with your financial goals and objectives. This should include your short-term, midterm, and long-term goals.

6. Implement your financial plan

Implementing your financial plan is the most important step in financial planning. You have to put your plan in action in order to reach your goals.

Though this is the most important part of the process, it can also be the most difficult. That’s because implementation requires discipline and consistency.

This is where automating your finances works in your favor.

Use automatic transfers to ensure that you are saving and investing according to your plan. You can also automate bill payments for day-to-day money management.

7. Review, monitor, & update your plan

A financial plan is a dynamic document. You will consistently evaluate your progress and make adjustments based on life circumstances and changes in your priorities.

Life changes can include getting married or divorced, having children, a change in careers, or perhaps a death in the family. Each of these things are reasons to reevaluate your financial goals and realign your strategy.

It should be a monthly, quarterly, and yearly practice to review your progress against your goals. Doing this allows you to make changes in realtime to avoid losing momentum.

Final thoughts on the financial planning process

Don’t be intimidated by creating your own financial plan. Just follow these steps of the financial planning process and you can create a strategy to reach your goals in no time! As always, Clever Girl Finance is here to help you. Check out our free resources to guide you in creating your financial plan.

Scroll to Top