Financial planning is a method of putting your finances in order so as to better protect your future
and that of your dependents. A financial plan gives you a sense of financial security that allows you
to spend rightly and save adequately. It also helps you take care of your debts in a structured way
that will prevent them from choking you. The very first step to take in financial planning which is
usually overlooked is to decide that you need one. After deciding that you want to set up a financial
plan to help monitor your present and future finances, you can then engage the services of a reliable
financial advisor to help you with a preferred structure. Find the 10 key components to financial planning to help you build out your process fully.
This article will talk about the various steps involved in having a practicable financial plan that will
secure your future and that of your dependents. Having a financial plan will enable you to have
control over your income, expenses, and investments to achieve your financial and life goals. From
the moment you decide to have a financial plan, the first step is to assess your financial position so
as to know where to start from. You determine your current income, and future possible income,
with your daily and monthly expenses. You will also need to assess your debt situation to know your
obligations. After the assessment, there are subsequent steps that you may need to take to ensure
your financial plan takes root. Some of the other steps that will be discussed include developing
financial goals, a budget, and a plan to service your debts.
What Is The First Step In Financial Planning?
We all make hundreds of decisions every day, some with reasons and some without reasons but all
decisions we make have both short and long-term consequences on our future. This is why having a
financial plan is considered one of the most prudent decisions you will ever make. It will help you
monitor your finances and secure your future. As it is with other things, a future position, there must
be an analysis of a current situation. When it comes to wealth management and financial planning,
the very first step financial advisors encourage is the analysis of your current financial situation.
Analyzing Your Financial Situation
This step of the financial planning process is the first and comprehensive view of where you are
financial, considering your income, expenses, savings, investments, debts, and taxes. In analyzing
your current financial position, you will have to prepare a list of your current assets, debt balances,
interest rates, your daily, weekly, and monthly expenses. This will give you a foundation for workable
It is advisable to engage the services of a professional financial planner that will collate all your
financial documents to determine your current financial position and help you design a structure
that will require that you make some changes in your financial lifestyle. During this stage, some
questions will be asked which will bother on your lifestyle goals, financial goals, risk tolerance, and
credit card transaction. After getting the much needed information and determining your current
financial position, changes may be made to your financial structure mostly in your expenses, savings,
and investments. These changes will be in line with your desired financial goals which will probably
be your next step in the financial planning process. Once a review of your financial position is
complete, it will be easier to proceed to the next steps of your financial plan.
What Is The First Step In Financial Planning For A Baby?
For most, having a baby is desirable, and having a good financial plan alongside will go a long way in
securing the future of your child. It is advisable to start your baby’s financial planning as soon as you
realize your baby is on the way.
Whether you decide on time before birth or immediately after birth that you want to have a financial
plan for your baby the first thing to do is to update your financial plan to accommodate your baby's
arrival. Most importantly your monthly budget. Once a baby is in the picture, you may need to
review your monthly budget to accommodate the baby’s needs. Most people underestimate the
expenses that follow the arrival of a new baby, therefore the adjustment you make may be a
significant one, especially for first-timers who have to buy new baby needs such as cribs, swings,
toys, and car seats. You have to create room for expenses such as diapers, infant medicines and food,
and visits to the pediatrician. Having a financial plan for your baby is the first step of good
What Are The Next Steps Once You Analyze Your Financial Position?
After you must have analyzed your current financial situation, there are other steps you will need to
take to put your financial plan in good shape. Some of these steps include:
Identify Your Financial Goals
Once you have reviewed your financial position and you know what your financial strengths and
weaknesses are, the next step is to develop your financial goals. Your financial goals will serve as a
roadmap to your financial future. You can divide your goals into short-term, medium-term, and
long-term goals. It helps you differentiate your needs from your wants. Your financial goals must be
reviewed regularly to capture any change in your financial situation.
Developing a Strategy For Your Financial Plan
This step enables you to come up with savings and investment plans that will help you improve your
financial situation and attain your financial goals. You can design how your money will be spent on
things like savings, investments, and bills. The financial strategy will also create a road map on how
to increase your income, either through job-hopping, side hustles, and a salary raise. Having a
strategy also brings other areas of your financials to the fore. It will help you consider areas like
estate planning and insurance. This will also help you strategize on the type of investments that will
grow your savings into what will protect your financial future. Your investment strategy will depend
on things like your personal needs, risk tolerance, and financial goals
Engage The Services Of A Financial Advisor
A professional advisor is quite necessary when it comes to financial planning, especially if you have
complex financial needs. A financial advisor will guide you in putting your financial plan in place. He
may also introduce you to a network of other professionals such as a tax lawyer, an insurance specialist, and
investment advisors, that you may need to implement your financial plan. A financial advisor will
review your financial plan and his expertise will help straighten any grey areas in your plan.
Evaluate Your Strategy
Having come up with a financial plan strategy, it is easy to lose track of some of your needs and
strategies. There might also be a couple of strategies that may not fit into your financial goals
together. Evaluating your strategies will help you identify any loopholes in your financial strategies
and plans. This is the time to discuss with your spouse, attorney, and your investment house to
ensure everyone is on the same page. This is also where your financial advisor evaluates your
proposed strategy and ensures it aligns with your risk appetite and goal. He may also make his
recommendations which you should consider.
This is also another important step in financial planning which may make or mar the success of your
plan. There are inherent risks in every financial plan and it is important to evaluate each risk and
decide whether it is worth taking on. For example, you may have a plan to sacrifice further studies
for work in order to earn more income. While this may be a good plan in the short term, it may
become a problem in the long term because you may not be able to advance in your career due to
your limited education. These are the types of risks that must be evaluated before implementing your
financial plan. Another important risk that should be evaluated alongside your planning includes
your investment risks. This is what will determine how your savings will grow.
Implementing Your Financial Plan
After so much work has been put into the planning stages, the implementation stage is one of the
most challenging stages of financial planning. This is the stage where you chart different courses of
action for the success of your financial plan. At this stage, you have to make hay while the sun shines
by implementing every decision as and when due. For easy implementation, you can create a budget
calendar for your expense to ensure that you are not ahead of your budget at every specific period,
set dates and reminders to complete some financial tasks, and implement decisions. You need to
have your financial advisor on speed dial at this stage because his recommendations, guidance, and
network will come in very handy. He may also handle interaction with financial product providers on
Monitor and Update Your Progress
This is a very important stage because it is what will ensure the sustainability of your financial plan.
You must continue to monitor and update your financial plan until you meet every goal in your plan.
As you progress through the different phases of your life, your priorities and situations may change
which may require some tweak in your financial plan. Periodic monitoring and update of your
financial plan will help you adjust your financial plan to reflect your current situation. It will also
help you to prioritize your financial decisions and make necessary adjustments that will align your
financial needs and goals with your current life and financial situation.
Financial Planning Steps Conclusion
Financial planning is a very important process that required a properly defined and documented
process (you can read our blog on Financial Planning Checklist) as listed in this article. When you
follow a systematic process in setting up your financial plan, you are guaranteed a reasonably
financially secured future. It not only protects your finance, but it also makes provisions for your
loved ones and ensures that they are properly taken care of as your dependents. While a financial
plan may not give you a foolproof financially secure future or wealth creation, it will, however,
provide you with the opportunity to look towards attaining wealth and a financially secure future
with proper analyses, discipline, and the expertise of a financial advisor.