The Financial Planning Process in Six Steps

 The first step in the financial planning process involves taking a detailed look into a person’s current financial situation. This means examining a person’s savings, income, debts and current living expenses. Determine where the person stands financially and what changes will need to be made to reach specified goals.

 Financial goals help guide a financial plan and should be clearly stated at the start of the financial planning process. These goals may be different for everyone, such as getting out of debt before retirement, building an emergency fund or saving enough money to pay for the children’s’ or grandchildren’s’ education. 

Good decision-making requires having an alternative course of action which individuals can turn to when a main course of action does not work out as intended. A main course of action typically includes continuing on the same course, changing the current situation, expanding the current situation or taking a new course of action. It is important to consider all alternative strategies to determine which is best for the situation.

 The next step in the financial planning process involves evaluating possible courses of action. When evaluating courses of action, it is important to consider the person’s life situation, values and the current economic conditions. Individuals should also be aware of the trade-offs of their decisions. For example, a person may choose to use their money to pay off their mortgage but in turn, will not be able to go on vacation this year.

  Once financial goals have been specified and alternative courses of action created and evaluated, it is time to develop an action plan. A financial action plan involves finding ways to achieve financial goals. Goals should be listed in order of importance and once the most prioritized goal has been completed, start working towards the next goal on the list.