7 Key Steps of the Financial Planning Process

Financial planning isn’t only a one-time process in which you make a savings plan and then sit back and wait to achieve your goals.

Comprehensive, long-term financial planning does involve establishing a preliminary plan, but it is important to understand that financial circumstances, challenges, and priorities may change over time. As you approach the financial planning process, it’s essential to remember that the process of setting goals and laying out a blueprint for saving and investing is just the first step in a larger financial journey—one that can help you realize all of your goals and enjoy financial security both now and in the years to come.

Wondering what that process looks like? Here are seven key steps to include in your financial planning.

 

1. Define your short- and long-term goals.

Financial planning is always based around the financial goals you want to achieve. Though these goals may change over time, it’s important to establish some preliminary goals to help guide your saving strategy.

Ask yourself the following questions: What do you want your financial future to look like? What short-term goals—such as saving for college, purchasing a car, or buying a home—are you pursuing? What goals seem easier to achieve, and which ones seem like a stretch?

 

2. Audit your current income, savings, and long-term savings and investing plan.

Once you have goals in place, you need to assess your ability to reach them based on your current cash flow. How much are you earning every month and year? How much are you saving? If you haven’t set a budget, now is the perfect time to start tracking your spending by category and increasing your own awareness of your spending habits.

To reach your financial goals—especially long-term goals like building up retirement income—you need to focus on meeting monthly savings and investment goals. You should also account for your current financial stability, such as your emergency fund and/or outstanding debt—especially high-interest debt.

 

Prepare for the Good, the Bad, and the Unexpected

 

3. Address shortfalls/adjust goals.

Once you’ve assessed your current income, spending, and savings, you may need to adjust your plan and/or your spending to make the math work in your financial planning.

If you’re facing a shortfall, you may need to delay a house purchase or move back your target retirement age. Alternatively, you may want to scale back your monthly spending, or even take on a second job, to help you reach those long-term goals.

 

4. Account for multiple future scenarios.

A good financial plan is flexible and can be adapted as new challenges and scenarios arise. From unforeseen expenses to new financial goals—such as increased travel during retirement—your financial plan should offer you some insight into how those changes would affect your outlook and your current savings plan.

As you move forward in pursuing your financial goals, are you well positioned to withstand unexpected expenses and other financial challenges? How easily can you reallocate your savings and investments to account for new financial needs?

 

View Infographic - 4 Tips for Building an Emergency Fund Savings Account

 

5. Develop a comprehensive financial plan.

Once you’re satisfied with your goals and your ability to meet them through saving and investing, it’s time to develop a solid plan for how you will make progress from month to month. This includes mapping out timelines for when you will reach certain goals, such as saving for a down payment.

You will also need to use calculators to make sure your plan will be sufficient to reach important benchmarks and long-term goals, such as adequately funding your retirement based on your target retirement age.

 

6. Implement and monitor that plan.

After a financial plan is set, it’s time to follow through with that plan and make the changes necessary to reach those goals. Track your progress on a monthly and annual basis to avoid falling behind, and track investment earnings and interest dividends to make sure you’re on pace to meet or beat your projected timeline.

 

7. Adjust goals or other financial plans as your circumstances change.

If your goals change, or new challenges crop up that make it difficult to meet the demands of your existing financial plan, a new approach may be required. Financial planning can always be affected by a loss of income, a big promotion, new additions to your family, failed investments, medical emergencies or disabilities, or even your own personal reassessment of what matters most to you.

As your circumstances and priorities change, you will need to adapt your financial plan accordingly—and, in some cases, these changes will be motivated by increased saving and investing power that lets you accelerate your progress toward savings goals.

Looking for help as you work toward these financial goals? Download A Complete Guide To Budgeting today.

 

Prepare your finances for whatever life has in store for you. Download Now.

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