Search in Indianmoney's WealthPedia

Home Articles Steps in Financial Planning

Steps in Financial Planning Research Team | Posted On Tuesday, March 24,2009, 03:35 PM

5.0 / 5 based on 1 User Reviews

Steps in Financial Planning



Financial Planning Process

The financial planning process consists of six steps that help you to understand where you are financially, what is your financial position now, etc. Using these six steps, you can understand and plan where you are now, what you may need in the future and what you should do to reach your financial goals.The six steps are as follows :

1. Identify where you are today

The first step is to identify where you are (financially) today. You should have a starting point for developing goals and measuring future developments. If you are going to plan with a professional planner, they will usually need you to fill a questionnaire that will give them all the relevant details about your financial background. If you are doing it alone, you should have a pretty good idea of your situation. Take time to collect exact information and then plan your future needs.

The information you need to find are:

  • Assets and liabilities - Assets include everything you own such as real estate, investments, and pensions. Liabilities include everything you owe like mortgages, lines of credit, outstanding credit card payments etc.
  • Current sources of income - salary, investment income etc.
  • Current expenses
  • Tax returns
  • Investment records
  • Insurance policies - life, property, disability and general liability
  • Company benefits - pension, medical, life and disability insurance
  • Wills and powers of attorney

2. Develop Financial Goals


Once you know where you are today, you will be in a position to develop some goals for the future such as setting up your own business in a few years, Retirement, children education, etc. Most of us have a number of long-term goals we would like to work towards. But we may not be able to achieve all of them. A financial planner can help you to make clear your own attitudes and values, which is an important step towards setting priorities for the future. Only you can make a decision whether it is more important to provide for your children's education, help support elderly parents or fulfill your dream of early retirement. But a financial planner can assist you to explore your own values in a way that will make it easier for you to see where your priorities really are.

3. Analyze Your Current Situation and Prioritize Goals

Now you need to take a clear look at your current situation in relation to your goals to see what hurdles are blocking your way. Some of these may be quite apparent to you. Perhaps you know that you do not save any money towards your goals, or that you are so deep in debt, there is nothing extra to save. Poor money management skills are the main obstacles here.

In this case you may need the assistance of a professional to identify the problems. Only a financial planner can help you to find remedy for the following questions;

  • Are you paying too much tax?
  • Are you adequately insured?

You might be paying too much tax. Only a financial planner will know if there are any specific tax-reduction strategies you are missing. If you are not insured adequately, a financial planner can determine the benefit that you or your survivors would receive from your current coverage and compare this to the actual amount needed.

4. Develop Financial Plans and Strategies

Develop a strategy to face the problems. With the help of a professional planner, this will usually take the form of written recommendations and optional solutions. On your own, you will probably mull over the problem and decide in your head what you're going to do about it. It is a good idea to commit your decision to paper, however. This formalizes your course of action and gives you something to refer back after the implementation.

It is very important that your strategy be specific. Saying that you are going to start saving money is not a strategy, it is a formula for the failure. You need to identify exactly how much you are going to save every week, month or year. You also need to find out how you are going to do this.

  • Will it be by participating in your company savings plan by means of payroll deduction?
  • Will you arrange with your bank to transfer money into a money-market fund every month?
  • What is your timeline for making these arrangements?
  • How will your savings be invested once they start to accumulate?

5. Implement Your Financial Plans

Putting your plan into action is the next step. The best plan in the world is not worth anything if it gets filed away in a drawer. Unfortunately, this often happens when people do it alone. We all have a tendency to postpone, and financial matters often get left behind in the crush of day-to-day responsibilities. A financial planner can help you here. Realistic timeframes can be developed for the different steps that should be completed. The planner might be able to perform some of the action steps for you, and can follow up with you on other items to ensure that timeframes are adhered to.

6. Monitor Progress and Revise Your Financial Plans

Finally, a financial plan is never written in stone. Circumstances change, and your plan also need to be adapted so that you stay on track with your goals. You must review your plan at least once in a year to appraise your progress and see if changes need to be made.

Your net worth statement can be a useful tool here. Use it as a benchmark to assess your progress. Has your net worth increased by as much as or more than you expected? If not, you need to find out why it is so and take some remedial action. A financial planner can also provide contribution into changes in legislation and new investment products that you may want to include into your planning strategies.

What is your Credit Score? Get FREE Credit Score in 1 Minute!

Get Start Now!
Get It now!

This is to inform that Suvision Holdings Pvt Ltd ("") do not charge any fees/security deposit/advances towards outsourcing any of its activities. All stake holders are cautioned against any such fraud.