What Are the 5 steps in the Financial Planning Process?

What Are the 5 steps in the Financial Planning Process?

Having a financial plan is essential to achieving your financial goals. A financial plan is a guide that you can follow in order to achieve those goals. But how do you create a financial plan in the first place? A financial advisor in Orlando can help you to make a financial plan in order to meet your financial goals. Typically, there are five steps involved in creating a financial plan, whether it’s on your own or with the help of an advisor.

Step 1: Determine Your Financial Goals

Before you can make a financial plan, you need to know what the end financial goals are. The financial plan’s purpose is to help you achieve those goals, so the first step in creating one is to define exactly what those financial goals are. Each goal does need to be clear and have an ideal timeline in mind. For example, if one of your goals is to purchase a house, then you should also know how much you would need as a downpayment, how much the mortgage would be, and by when you would want to own the home.

Step 2: Compile Your Financial Information

Gathering up all of your current financial information is the next step. If you’re working with a financial advisor or a financial planner, they can’t help without knowing your current financial status. If you’re making a financial plan yourself, you can’t plan how to get to point B if you don’t know where point A is. You’ll also need to decide what your risk tolerance is because this can impact the financial plan.

Step 3: Create a Financial Profile

Once you have all of your financial information gathered, you can analyze it to put together a financial profile for yourself. If you’re working with a financial advisor, then your advisor can do this part for you. Putting this together will help you to better understand your current financial situation, from what you’re already doing well to what may need improvement.

Step 4: Develop the Financial Plan

Use the information you compiled about your current financial status and your financial goals to actually put together the financial plan. The plan should be based on your financial status, which will determine how much you can save or invest and how much money has to go to bills, rent, and other expenses.

Step 5: Implement the Financial Plan

No financial plan is perfect. For this reason, the final step, implementing the financial plan, is actually two steps in one. You do need to implement the financial plan, saving the money you determined in the plan that you needed to save. However, you also need to pay attention over time to see if the plan actually works for you. If you can’t save as much as you thought, or are able to save more than you thought initially, you should adjust your financial plan to accommodate that. You’ll need to periodically re-examine your financial plan to make sure that it’s still working for you.