7 Steps of Effective Financial Planning Staff Profile Picture
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A financial plan evaluates a person’s current financial situation and future goals and includes an inventory of all assets and liabilities. Many people feel comfortable identifying their financial goals and implementing these objectives themselves. However, some people prefer making these decisions under the guidance of a financial advisor. 

Advisors can evaluate your current standing by calculating known variables (such as income, debts, and asset value) to predict the trajectory of your financial status and make recommendations based on your current and future needs. A survey conducted by Visual Capitalist suggests that 74% engage in financial planning, but only 15% have written financial goals, and just 29% choose to work with a financial advisor. Regardless of where you are in your life, financial planning helps alleviate stress and allows you to feel confident in your financial decisions.

7 Components of an Effective Financial Plan

The following steps should help you (and your potential advisors) determine the best path for you to achieve your financial goals. 

1. Understanding Your Personal Financial Circumstances

You will determine your current actions regarding your financial goals in this step. Knowing where you’re starting and articulating what is essential to your future helps a potential financial advisor create a realistic plan to achieve your goals. You, or a financial advisor, should consider aspects of your life such as your household budgeting, family living expenses, commitments, tax standing, current investments or assets, or other financial expectations or obligations in your plan. It would help if you also considered things outside of your finances, such as your health, family relationships, values, earnings potential in new employment, and your preference for risk tolerance or intolerance. 

2. Identifying Your Goals

Establish your priorities, set your goals, and determine the timeframe in which you are going to accomplish them. Whether purchasing a house, creating a college fund, or saving for retirement, articulating your goals (to either yourself or your advisor) helps solidify what is important to you in the long term. Consider your short-term and long-term goals and determine how you might go about achieving them. These are some common goals that people aim to accomplish in their personal lives and future financial strategies:

  • Purchasing or paying off a property

  • Getting married or having children

  • College funds or student loan payments

  • Making your reserves and taxes proficient

  • Investing 

  • Starting a retirement plan

4. Developing the Financial Planning Recommendation 

Now that you clearly understand your situation and have defined your goals, it's time to develop and document financial planning recommendations. While you can do this step yourself, a financial advisor can help you further develop this plan. An advisor will present their advice and specify your options based on your needs. 

Choosing a plan you feel happy and comfortable with is essential. Meeting with an advisor is your chance to discuss your options, or potential alternatives, with an expert and take the necessary action that is attentive to your current situation, financial standings, and personal interests. Remember, whatever action method you choose, carrying it out as early as possible is critical to maximize efficiency. The longer your plan is left unattended or detracted from, it will take longer to grow your wealth. 

5. Implementing the Financial Plan

When you’ve selected the plan that is the best fit for you, you can now consider the implementation of how your plan will be carried out. You’ll need to decipher ways to achieve your short and long-term goals. If you struggle with financial literacy, you may consider working with an advisor to ensure you implement your plan promptly and consistently. 

Achieving long-term goals requires discipline and adjustment. It's important to remember that most decisions won't bring immediate change and may take time to work. Remember, whatever action method you choose, carrying it out as early as possible is critical to maximize efficiency. The longer your plan is left unattended or detracted from, it will take longer to grow your wealth.

 6. Identifying Alternatives for Investment

After a thorough look at your financial situation, potential needs, and the appropriate goals cemented down for your circumstances, the next thing to discuss is your investment alternatives or specific recommendations on how to invest from your financial planner. An integrated investment strategy should be included in your plan. It is developed based on set requirements (such as your preferred time frame, risk tolerance or intolerance, cash flow, tax strategies, etc.). By evaluating these alternatives and options for investment, you can produce more satisfying and reliable financial decisions in the long run.

7. Monitoring Your Progress

Financial planning is a dynamic process because it is typically unlikely that your financial circumstances will remain the same throughout your life. You will need to address the financial decisions you make periodically as personal, economic, and social situations change and require you to alter your decision to suit your new situation better. 

As you enter through the various phases of your life, your financial needs will be reflected, and these needs will serve as a guide to let you adjust to these changes. Allowing a financial advisor to review your progress ensures not only that your financial situation is on track to meet your goals but also that necessary adjustments are made to your plan. Monitoring and updating your plan at least annually will help you prioritize your decisions and track if the adjustments made are no longer necessary. Considering this will allow you to align your financial needs with the goals of your current and future circumstances. 

How a Financial Advisor Can Help

While financial planning is important, many individuals may feel overwhelmed with the prospect of determining what their personal financial plan should look like and what desired outcome they would like it to produce. If you feel hesitant about creating a financial plan, consider hiring a financial expert with expertise specific to your particular situation.

To understand the financial planning process more in-depth or to learn more about financial advising, please click here to view’s resources for financial planning and find an advisor local to you. 

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