Building a robust personal financial plan is the cornerstone of achieving your financial goals. The good news is, you don’t have to reinvent the wheel! You can leverage the same processes used by Certified Financial Planners (CFPs) and financial advisors when crafting financial plans for their clients.

Before diving into creating your strategic financial planning process, let’s establish a clear understanding of what a financial plan truly entails. 

What is a Financial Plan?

A financial plan is a documented strategy that outlines how you intend to achieve your long-term financial goals. It serves as a roadmap to your financial future.

Financial plans assess your current financial situation by taking stock of your debts, assets, income, and other relevant financial information. 

Using this information, you or a financial advisor can develop a personalised plan to help you reach your future financial aspirations. You can use the seven steps to form the cornerstone of effective financial planning. 

Why Do You Need a Financial Plan?

A financial plan acts as your roadmap to achieving your future financial and personal goals. It goes beyond simply setting goals – it creates a clear strategy, a way to track your progress, and identify areas for adjustment along the way. 

Essentially, having a written plan increases your chances of success and makes future planning much easier. 

The beauty of financial planning is that you can create your strategy independently or seek the guidance of a financial advisor, depending on your comfort level and financial complexity. 

What is the Step Financial Planning Process?

If you choose to create your own financial plan, consider adopting the 7-step process commonly used by financial advisors and Certified Financial Planners (CFPs). This established approach guides you through assessing your current financial situation, defining your goals, crafting a plan of action, and monitoring your progress. 

Let’s break down these seven essential steps in financial planning: 

Step 1: Assess Your Current Financial Situation

Before charting your financial future, you need a clear picture of your present financial standing. This initial step involves gathering your most up-to-date financial information. 

To build an accurate analysis of your financial health and personal circumstances, compile the following:

• Income and Tax Information: This includes your salary, any additional income sources, and tax obligations.
• Assets: Make a comprehensive list of all your financial assets, along with their current values. This could include savings accounts, emergency funds, retirement accounts, investments, property holdings, education savings plans, and more.
• Liabilities: Create a list of all your debts, including outstanding balances. Examples include credit card debt, mortgage, car loans, student loans, etc.
• Insurance Plans: Outline your existing insurance coverage details.
• Credit Score and Report: Understanding your credit score and report is crucial for financial planning. 

Gathering all this information can feel overwhelming, so organisation is key. A great way to stay on top of your finances is to create a system for storing all your financial documents, either in a physical folder or a designated digital folder on your computer.

Step 2: Define Your Financial Goals

The next step in personal financial planning is setting your financial objectives. Ask yourself: what do you want your financial future to look like? 

It’s helpful to categorise your goals into three time frames: short-term, medium-term, and long-term. Short-term goals are typically achievable within the next year, medium-term within 1-3 years, and long-term goals are those you plan to achieve in over 3 years. 

Ultimately, your goal-setting should reflect your desired lifestyle. Without a clear understanding of your aspirations, it’s difficult to establish meaningful and achievable objectives. 

Here are some thought-provoking questions to help you clarify your goals:

• What is my ideal retirement age?
• How frequently would I like to travel? 
• Do I see myself getting married?
• Do I want children (or more children)?
• Will I need to provide care for elderly parents?
• How much would I like to contribute to charities or philanthropic causes?
• Is starting a business something I’d like to pursue?
• What is my risk tolerance level?  

By considering these questions and others like them, you can develop a set of financial goals that are truly aligned with your values and long-term vision for the future.  

Once you have a clearer understanding of your aspirations through these questions (and potentially others you uncover), you can begin outlining specific goals that will help you achieve your desired lifestyle.

Here are some common goals you might set within your financial plan:

• Debt Repayment: Develop a strategy to pay off existing debts.
• Emergency Fund: Build a financial safety net to cover unexpected expenses.
• Retirement Savings: Start saving and investing for a comfortable retirement.
• Life Insurance: Secure adequate life insurance coverage to protect your loved ones.
• Estate Planning: Create an estate plan to ensure your assets are distributed according to your wishes after your passing.

Remember, these are just examples. The specific goals you set will be unique to your circumstances and aspirations.

Step 3: Analyse Your Data

With your financial information gathered, it’s time to delve into the analysis. 

As you review the data, consider these questions:

• Financial Health Assessment: How does your current financial situation appear? (e.g. net worth, spending habits, debt levels) 
• Financial Management Practices: Are you currently using any effective money management strategies? (e.g. tax planning, automatic savings/investment contributions)
• Asset Allocation: How are your assets distributed across different categories (cash, savings, investments etc.)
• Risk Management: Do you have adequate life insurance coverage?
• Estate Planning: Have you established an estate plan to manage your assets after your passing?

By answering these questions, you gain valuable insights and direction regarding your finances and current progress towards your goals. This analysis can also identify any gaps or weaknesses in your plan. You can even explore potential alternative scenarios to create more options for yourself.

Step 4: Develop Your Strategy

All the groundwork you’ve laid thus far – the financial planning process –  culminates in this step. Here, you’ll define the specific actions required to achieve the goals you set in Step 2.  This is where your financial plan transforms from theory into actionable steps. 

To craft your personalised financial plan strategy, some assumptions will be necessary. For example, you’ll need to estimate your future income and anticipated rate of return on your investments. 

While initial assumptions are helpful for creating your plan, remember that this is a living document.  As your circumstances change and you gain more financial literacy, you can refine and adjust your plan accordingly.

Financial calculators can be valuable tools to help you break down your goals into manageable monthly or annual steps. They can be used to calculate the amount of monthly savings required to achieve your goals,  whether it’s debt repayment, retirement planning, or building a savings buffer. 

There’s no need for your plan to be overly complex. The key is to  document the specific actions you need to take on a weekly, monthly, and annual basis to achieve your goals. Break down your goals into actionable steps and prioritise them accordingly.

Step 5: Review and Refine

This is the stage where, with a financial advisor, you would receive finalised recommendations based on your financial plan. Through discussion, you would gain a deeper understanding of the planning process.

Even if you’re creating your plan independently, it’s still important to take a step back and review it thoroughly before taking action. This allows you to identify any potential gaps or areas for improvement.   

Crucially, ensure the actions outlined in your plan align with your overall financial goals and objectives. Consider both your short-term, medium-term, and long-term aspirations to ensure your plan comprehensively addresses them.

Step 6: Implement Your Plan

Putting your financial plan into action is a critical step in the process. Having crafted your strategy, it’s time to translate it into real-world actions. Prioritise implementing your plan and adapt your current financial behaviours to achieve your goals. 

While arguably the most crucial step, implementing your financial plan can also be the most challenging. This is because execution requires discipline and consistency.

This is where financial automation can be a powerful tool. It can streamline many implementation tasks:

• Automatic Transfers: Set up automatic transfers to ensure you’re saving and investing according to your plan. 
• Bill Payments: Automate bill payments to free yourself from the burden of manual management and ensure timely payments.

By leveraging automation, you can free up mental space and reduce the risk of derailing from your financial goals due to forgetfulness or busy schedules. 

Step 7: Review, Monitor, and Adapt

Since a financial plan is a living document, it requires ongoing monitoring and adjustments to reflect your evolving priorities and life circumstances. Life throws curveballs, and your financial plan should adapt accordingly. 

This could include significant events such as marriage, divorce, starting a family, career changes, or even bereavement. As these milestones occur, revisit your financial goals and update your strategy to stay aligned with your changing needs. 

Regularly comparing your progress against your goals is essential. This could involve a monthly, quarterly, or annual review process, depending on your comfort level and the complexity of your plan. 

Monitoring your progress is a vital part of financial planning, as it allows you to make adjustments in real-time and stay on track towards achieving your goals. Think of it as course-correction for your financial journey.

Remember, the seven steps outlined above are a roadmap, not a rigid set of instructions. Don’t be overwhelmed by the information – simply follow these steps as a framework, and you’ll be well on your way to developing a personalised strategy to achieve your financial goals!