The Most Effective 7 steps in Financial Planning

Last updated on April 6th, 2024 at 02:11 am

In this article, All About Management is here to help you understand the 7 steps in Financial Planning. 

Are you an investor? A broker? An investment banker? If you are looking to invest and want to know what the 7 steps in Financial Planning are, then keep reading. This article is for all 3 of the individuals – Investor, broker or investment banker.

2023 is a highly advanced era, society is aware about the benefits of investing, and has started taking actions. If you are new and don’t know a lot about what financial planning is, let me explain it to you.

What is Financial Planning?

Financial planning is studying a person’s financial records and recommending them the necessary ways to achieve their aim. In short, it’s like a financial budget plan. The aim of financial planning depends on the person who’s financial statement is being studied, it could be to raise money for a startup, save for their holidays, save up for retirement, manage taxes, philanthropic activities, investment plans, etc. 

Whatever the reason may be for financial planning, I believe even if you are working through a broker or consultant, you yourself should be aware about what are the 7 steps in Financial Planning and how they work. And if you are a broker or financial consultant, well, you are aware about the importance of knowing the 7 steps in Financial Planning.

ALSO READ : Financial rights to the Assets of a Business

Steps in Financial Planning

The 7 steps in Financial Planning is the process followed by the CFPs – The Certified Financial Planners, a certification course which includes the professional study of financial planning offered by the FPSB – Financial Planning Standard Board.

Step I – Studying the Individual and their Financial Position

The 7 steps in Financial Planning start with the analyzing phase. The Certified Financial Planners process is to study the Individuals personal and financial position. And to do so, certain questions have to be asked to get a better grip on both. 

For personal position refers to what the individual feels about the market, how much risk is he/she willing to take? What is the expected return? What is the aim of this plan? And a few more questions to Get a clear idea about what the investor wants and what are their expectations. 

For financial position, the questions are regarding taxes, income, expenditure, insurance plans, etc. to get a grip on where the investors financial position stands.

Step II – Recognise the Aim of the Investor

After analyzing the investor, the next step in the 7 steps in Financial Planning is to understand what the investor wants. In this process, investors are asked about what their aim is.

Here, we have to recognise what the aim of investing is. So the questions become regarding why the investor wants to do financial planning, what is their ultimate aim, how much are they expecting to save, and how much are they willing to invest. 

Everything depends on the investor. Is he/she a risk lover? Risk mediator? or risk neglector? This becomes the basis for further planning. A risk lover person is someone who is willing to take risk in the market for high returns. A risk mediator is someone who wants average risk and will settle for average returns. A risk neglector is someone who wants minimum risk and will settle for less returns.

ALSO READ : What is securities in finance? In easy words.

Step III – Creating the Alternatives

Next up is in the 7 steps in Financial Planning is creating the alternate courses that are suitable to investors demand.

Now that we are aware about what the goal of an investor is for financial planning. We have to analyze the possible options that the investor has depending on their financial position, their personal goals, their market risk decision. 

Once everything is analyzed, we have to think of the possible ways in which the investor can achieve their financial goals. While thinking of these outcomes, the factors to keep in mind are that we have to forecast how this plan will play out, and then choose the best plans for the user.

Step IV – Presenting the Alternatives to the Investor

Once we have analyzed the possible outcomes of every plan, it’s time to present those plans to the investor. 

We have to choose the best plans from all the outcomes we forecasted and then present it to the investor. While presenting these plans, we also have to make sure that they understand the risk and benefits of the plan and make their decision. If they are having any doubts, we know their goal and feelings, it is our job to make sure we suggest to them a plan that we think will be suitable for them.

Step V – Selection of Plan

The fifth of the 7 steps in Financial Planning is selection of plans. 

The investors have been presented with all the possible outcomes which are considered best for them to achieve their financial Goal. They have to select the one that they think is comforting and suitable for them. 

As I’ve said before, if the investor still has doubts or is confused, we can suggest the plan we think is the best for them based on your experience. Once the investor chooses the plan, they have their plan locked and ready to be executed.

Step VI – Execute the Plan

The Sixth step in the 7 steps in Financial Planning is after a plan has been selected from the alternatives, its the execute the plan. 

The plan that the investor finalizes upon is brought into action in this phase. As per the financial plan, all the activities are carried out. If there is a need for saving, then the investor is advised to save, if there’s a need for investment, then he/she is advised to invest in a certain asset and so on. 

If you are executing the plan yourself, then it’s a bit tough to work on it. You will need 2 factors constantly, consistency and discipline. These will help you to accomplish your aim you have as constructed as your financial plan.

Step VII – Tracking the progress and updating

And finally the last and one of the most important phases of the 7 steps in Financial Planning, Evaluation the progress. 

Just because the plan has been executed doesn’t mean that the work is done. We have to constantly check up on the progress the plan is making. Is everything going according to the plan, is the pace just as you planned or are there any flaws? We have to constantly check up  and make sure that every action is progressing towards the plan.

If there are any flaws or problems in the plan, we have to evaluate the problem and take corrective measures and bring the plan back on track.

ALSO READ : 4 Important Technical Skills in Management

FAQs

Closing Statement

The 7 steps in Financial Planning by the Certified Financial Planner is a proven method for Financial planning. Now that you are also aware about it, you can yourself use and apply these 7 steps in Financial Planning and make you own financial plan. 

I hope this article about 7 steps in Financial Planning is helpful to you and that you use it. If there are any doubts or suggestions, process it down in the comment box.

“Let’s Achieve Financial Freedom”