The Six Steps to Effective Financial PlanningSubmitted by Reby Advisors | Certified Financial Planners | Danbury, CT on March 1st, 2016
Financial planning isn’t easy, especially when you’re busy with a career, running a family, and/or taking care of a household. There just isn’t a whole lot of time to: a) learn the financial planning process; then b) develop and implement your financial plan.
But when you get help from the right people, the process can be much simpler and extremely rewarding: You begin to see the big picture as you set long- and short-term goals; it becomes easier to make financial decisions once you have a clear roadmap to success; and you gain peace of mind in knowing whether you’re on track to achieve your goals
When you break the financial planning process down into smaller, more manageable steps, it doesn’t seem as overwhelming.
Below are the six steps in the financial planning process as laid out by the CFP BOARD. If you already have a financial plan – either with us or with someone else – revisit Step 6. That’s the step where you monitor your progress in achieving your goals. If you don’t have a financial plan yet, here’s what you can expect when developing a plan with a CERTIFIED FINANCIAL PLANNER™:
Step 1. The first step to effective financial planning is choosing an advisor and establishing a relationship. By “establish a relationship,” I don’t mean you have to be friends. But you should be comfortable working with your advisor because you’ll be sharing your personal financial information and discussing your goals. This step is also about setting expectations, both what you plan to get out of the relationship and also understanding what the CFP® professional requires from you.
Step 2. Next, gather your financial information and establish goals. A great financial planner wants to understand your entire financial picture – assets, debt, income, spending rate, etc. – and also gain an understanding of your financial and lifestyle goals. This step establishes where you are now, and where you want to be. The next steps are about closing the gap between the two.
Step 3. Your CFP® Professional analyzes your financial status and makes recommendations. Are you on track to reach your goals? What do you need to do to reach them? Depending on the services you have hired your financial planner for, you may receive recommendations on investment strategies, types of insurance to purchase, how much money you can afford to spend, or tax reduction strategies.
Step 4. You review and consider the recommendations. A CFP® Professional explains the logic behind his recommendations, and should also listen to any concerns you have about the recommendations. It’s your money, and you have to be comfortable and confident with your plan.
Step 5. Implement the CFP® Professional’s recommendations. Put the plan into motion. Oftentimes your financial planner can carry out the plan for you – like we do here at Reby Advisors – and manage investment decisions, purchase life insurance, and whatnot. Other action items may be in your court.
Step 6. Benchmark your progress against the goals in your financial plan. Sometimes simply establishing goals and measuring your success against them, can help you become more motivated and engaged with your finances.
Possibly the greatest reward in the financial planning process is gaining confidence in your financial future. It’s empowering to know you’re in control, reassuring to know you have expert help, and motivating to document your goals.
Need an effective financial plan? Click here to contact us and find out if we're a good fit to help you achieve and sustain your goals.