A Comprehensive Financial Planning Process in 7 Steps

steps to financial planning

What are the key Steps to Personal Financial Planning Process?

By definition, personal financial planning is a systematic, long-term process whereby an individual utilizes the existing financial resources in a prudent manner to best achieve his/her personal financial objectives.

This process typically entails things like budgeting, tax planning, saving, debt management, and retirement planning. Financial planning helps you to determine your long-term financial goals and create an effective plan to meet those goals.

Factors used to determine your financial goals

Setting financial goals is an integral part of financial planning. If you aren’t working toward anything specific, it’s nearly impossible to achieve financial success. It’s often easier to reach your long-term financial goals if you identify them in advance.

Examples of financial goals

  • Having a well-stocked emergency fund
  • Getting out of debt
  • Planning for early retirement
  • Creating multiple income streams
  • Having enough insurance to cover contingencies
  • Homeownership
  • Investing in college education
  • Paying off the car


The following are the seven things to consider when establishing your financial goals:
Time horizon

Every financial goal needs to have a start date and finish date so that you have a deadline to focus on and something specific to work toward. A time-bound goal is intended to establish a sense of urgency. If the goal is not time-bound, there will be no sense of urgency; hence less motivation to achieve the goal.

Income vs. Growth

When it comes to investing, there are two approaches you can take—income investing and growth investing. Income investing targets the creation of cash flow through choosing investments that offer a fairly consistent payout.

Growth investing, in contrast, entails building a safety net by looking for investments that are likely to grow at a fairly rapid pace in the coming years, resulting in a larger portfolio that can be put to use later on. Both investment strategies have their merits and demerits, so you have to evaluate each strategy carefully before making a decision.

Liquidity needs

Basically, liquidity refers to your ability to convert your assets or securities into ready cash without negatively impacting its market price to pay your liabilities when they are due. When investing your money in assets like stocks and bonds.

It’s important to establish your liquidity from the onset so that you don’t find yourself in a situation where you’re compelled to take out loans to meet your financial obligations. It’s a good idea to invest in fairly liquid securities so that you can easily tap into their value when the need arises.

Goals achievement

Setting short-term, medium-term, and long-term financial goals is an important step toward achieving financial freedom. However, when you’re setting financial goals, it’s imperative to determine if you’ll have enough time to achieve those goals.

Typically, short-term financial goals like credit card debt payments and saving up for a house are easier to achieve. On the other hand, long-term financial goals like planning for retirement and saving for kids’ education are harder to predict.

Primary vs secondary objectives

Finding out what your personal financial objectives are will help you tailor your financial goals properly. Moreover, you’ll be able to estimate the ideal time frame for achieving those goals.

Tax implication

Understanding tax implications greatly reduces the likelihood of making mistakes of ignorance.
These are the crucial elements that must be considered in a financial planning process to establish a strong foundation for achieving financial freedom.

Benefits of setting financial goals:

Establishing financial goals helps you in the following ways:

1. You have targets to aim for

Your financial goals give you a clear focus on what is important. Without a goal, your efforts can easily become disjointed and often confusing. When you know what you want to accomplish, you can zero in on each day’s tasks with precision, weeding out idle movement.

2. Setting financial goals get you into a habit of saving money

When you don’t have specific targets to aim for, it’s easy to spend your money on things you don’t really need. Without clear goals, you’ll not have the motivation to save money. Setting clear financial goals can motivate you to take action in regard to saving.

3. Gives you structure

Too many people have the desire to achieve financial freedom, but they don’t have clear personal financial objectives. They just hope something happens to them miraculously. Setting financial goals helps to change that by giving you a structure that will lead you toward success.

Properly thought-out financial goals clearly set out the things you really want to achieve. A proper structure will guide you in everyday decision-making processes.

4. Gives you a roadmap to follow

A financial planning process forces you to think about the journey instead of just the desired end result . Many people set financial goals but never have a roadmap that will lead them toward success.

That’s why it’s important to have an action plan that includes all the steps you need to take to get there. Instead of meandering through life; wishing and wanting, a roadmap helps you to avoid distractions and make real progress toward what is important to you.

5. Setting financial goals provide measurement and accountability

Setting financial goals, especially SMART goals allows you to take stock of where you are now and measure that against where you want to be in the future. This gives you an idea of how effectively you’re moving toward achieving them.

The financial planning process entails identifying the metrics by which to measure your progress. Being able to measure your progress will help you maintain focus, identify your strengths and weaknesses, and overcome obstacles.

6. Setting goals allows you to stay focused and be confident that you’re on track

When you set personal financial objectives and you have clarity over your end game and what you ultimately want to achieve, you then know what to focus on.

Without clearly setting out goals or a sense of importance, you’ll spread your focus and attention on distractions, thereby not getting much done. But when you stay focused, you stop wasting time on the unimportant and get the important done. This gives you confidence that you are on the right track toward achieving financial freedom.

Related: Financial Plans 101: What Are They and How Can You Make One

6 steps to financial planning process

The financial planning process is a logical, six-step procedure focused on the utilization of financial resources optimally for the achievement of personal financial objectives.

Here are the 6 steps of the financial planning process:

1. Establish your financial goals

In the first step of the financial planning process, you will determine the objectives for the financial plan.

This will lay the foundation for the financial planning process and provide a roadmap for your financial future. This step involves ranking your financial objectives according to your priorities in view of the available resources and other limitations. The goals should be quantifiable, achievable, clear, and time-bound.

2. Gather relevant data

The second step of the financial planning process is gathering relevant data to enable you to formulate a sound financial plan. This data will include income and expenditure, assets and liabilities, risk attitude, and tolerance.

By capturing all the relevant information in relation to your finances, you’ll be able to determine the appropriate strategies and financial products that will help you reach your long-term financial goals. For example, the relevant data will help to determine your time horizon, the best investment portfolio, and market risk.

For example, if you want to save for your kids’ education, you’ll want to obtain data relating to annual income, savings rate, life insurance, and the number of children you have. If you’re gathering data for retirement planning, information relating to retirement age, eligibility for social security, and the expected rate of return will be helpful.

3. Analyze all the data available

Once you’ve obtained all the important data that you need to develop your financial plan. The next step is to process and analyze the information to get an in-depth understanding of your situation in view of your financial objectives and the prevailing economic conditions.

This is also done to determine the gap between your current financial circumstances and the goals you intend to achieve.

At this point, you can seek the assistance of a financial planner to help you evaluate your personal financial objectives given the available resources and economic conditions.

4. Develop a solid financial plan

The financial plan is developed based on the information gathered in step 1. Your financial planner will guide you in developing alternatives and recommendations that are achievable based on your personal financial position. The financial plan needs to be revised as your financial position evolves, but it should remain within your financial capabilities and risk tolerance.

The financial plan is developed by including relevant recommendations and revisions. The probable recommendations depending on the client’s personal circumstance include:

Create a debt repayment plan– Along with causing you a lot of stress, being in debt denies you financial freedom in many ways. Decide which debts to pay first and make at least the minimum payment.

Ideally, you should pay off loans with the highest interest rates first. You also consider debt consolidation as a strategy to get a lower interest rate and save on interest payments.

Create an emergency fund – No one knows when an emergency strikes. To be on the safe side, ensure you have at least three to six months’ worth of emergency funds in your kitty. Having sufficient emergency funds saves you from adding to your debt with every financial bump you encounter down the road.

Start saving for retirement– This will ensure you have enough money to enjoy a comfortable standard of living when you retire. If you’re yet to start saving for retirement, focus on starting today.

Set up an employee stock ownership plan (ESOP)- This is an employee benefit plan that gives workers an ownership stake in a company. Basically, the company acquires stock and holds it in an account for employees.

Budgetinga budget is a plan to spend your money. It directs estimated personal income towards expenditures, repayment of the debt, and savings. For this reason, it guides, controls, and tells your money where to go. You already know where your money is going before it hit your bank account on payday.

At the end of the day, you don’t have to guess where all your money went. Here are 4 common budgeting types that you can use to be successful in the financial planning process: The cash envelope budget, half payment method budget, the 50/30/20 budget and digital budget apps.

Related: The Value of Financial Planning

5. Implement the plan

The next step in the financial planning process is to implement the plan. In fact, this is the most challenging step among the 6 steps of the financial planning process as it requires immense commitment and discipline to transfer plans documented on paper to real action.

Implementing a financial plan entails actions like opening an investment account, buying securities, consolidating debt, applying for risk insurance, and more.

6. Monitor your plan

A financial plan is dynamic and must evolve as your financial circumstances change. This is why your financial plan needs to be monitored and reviewed from time to time to remain relevant and up-to-date. Many things in life will change including career changes, marriage, income changes, the birth of children, and more.

Other external factors such as tax laws, inflation, interest rates, and more will certainly change; hence your financial plan will have to be updated periodically.

Benefits of financial planning

Cash flow planning

This involves assessing and forecasting the amount of money coming in and going out to establish your true financial position. Cashflow planning is a key component in the 6 steps to the financial planning process. Cash flow planning especially if it’s positive is crucial to lowering financial stress.


Financial planning allows you to create a spending plan for your money, a saving plan, as well as a debt payment strategy. This ensures predictability when it comes to finances.

Reduces risk

Evaluating risk tolerance is a crucial element of financial planning as it estimates the amount of loss you’re prepared to handle within your portfolio. Financial planning helps you to understand the risk implication before investing in a particular venture.

Succession planning

Proper succession planning is necessary if you want to ensure the effective distribution of your assets. Along with avoiding disputes down the road, succession planning helps to protect your loved ones from the IRS or CRA in Canada.

Add returns to investments

Understanding your return on investments is the key to making good financial decisions. Financial planning helps you to predict your return on investments so that you invest wisely. Based on established short-term or long-term goals – a financial plan helps you to determine how much risk you’re willing to take to reach it. Also how much risk you’re willing to take to reach your financial objective or goals.

Related: How To Set Rock-Solid Personal Financial Goals


7. Review Your Financial Plan

Financial planning is an ever-evolving process. Your financial plan should be regarded as an “evergreen or dynamic document,” therefore, it requires regular edits and updates to reflect lifecycle changes and social-economic status.

Even a minor change for an instance salary increase, the birth of a child, and job loss will have an impact on your ability to meet your financial goals.

You should review your plan, at least once a year or when a major life event happens. This allows you to arrange your goals on the basis of how they may affect your finances in the short and long term.


Financial Planning questions to ponder when Reviewing your plan

• Where did I fail and how to avoid repeating the same mistake
• Was my spending out of line with my budget and how to prevent it from happening again
• Is my emergency fund fully funded and in near liquid cash
• What steps have I taken to meet my goals?
• Did I achieve my monthly target?
• How do I plan to realize my goals
• How do I recover from a financial mistake
• What financial mistakes should I refrain from
• What actions will I take this coming quarter to achieve my goals
• Did I set realistic financial goals and are they still relevant
• Do I have the recommended 3-6 months cash for emergency expenses
• How much should I have saved up right now to retire comfortably
• How much money do I need to retire comfortably at age 65


In closing to 7 Steps to Financial Planning Process

Overall, the financial planning process is the key to developing a winning financial plan. Therefore, it’s important to understand the 6 steps of the financial planning process so that you’re able to create a proper foundation that will propel you toward financial success.


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8 thoughts on “A Comprehensive Financial Planning Process in 7 Steps”

  1. Great article! Very informative and helpful! Thank you for sharing us these 6 steps for financial planning. Hope everyone sees this. I also suggest seeking expert advice on what’s the best thing to do with your money. It is also better to go for the ones that are dedicated to giving their clients their financial success

  2. Excellent blog! Thanks for sharing here about saving money. It will help me in future! I recommend PitchBoard to you. I believe that talking to financial experts is the best! Looking forward to more wholesome content.

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