The personal financial planning process in 5 steps - EveryIncome Library (2024)

A personal financial plan is a blueprint you use to organize your money to ensure economic stability throughout life. A solid plan can help you make smart decisions with your money as your financial foothold evolves.

And the best part about the personal financial planning process is that it doesn’t have to be complicated. With or without a financial planner, you can whip up your plan in five easy steps.

Step 1: Assess your financial foothold

What your finances look like now shapes your personal financial planning process moving forward. To assess your financial foothold, take stock of your income, expenses and debt.

List your assets: the value of your property and investments (if any) and the balances of your checking and savings accounts. Then, list your debts: credit card balances, mortgages and other loans.

Next, compare your income against expenses tosee where your money is going and how much you’re left with at the end of themonth after you pay your bills.

Knowing whether your assets can cover your debtand whether you have wiggle room at the end of the month to invest and save canhelp you develop financial goals.

Step 2: Define your financial goals

You set financial goals to achieve a lifestyle,and to achieve that lifestyle, your goals must consider three things:

  1. How much money you need to pay your bills.
  2. How much money you need to pay off your debts.
  3. How much money you’ll need to save and invest to achieve the lifestyle you want.

Pro tip! Need help figuring out how to save and investto achieve the lifestyle you want? Check out this savings calculator!

Step 3: Research financial strategies

First, get your high-interest debts out of the way quickly before you start to save and invest. You can do so by consolidating your debt or using the debt avalanche or snowball method.

Second, consider opening a savings accountif you haven’t already. These accounts encourage monthly contributions to builda fund for emergencies or other substantial expenses you might need to pay downthe road.

Third, consider opening an investment account if you haven’t already. These help you generate wealth over time through investment returns — money earned on your investment through price appreciation. Investing has inherent risks, which you’ll need to consider.

Step 4: Put your financial plan into action

Now that you’ve formulated a plan, taketime to review it. Talk to a financial planner to seewhether you’ve overlooked something and to make sure your numbers add up.

If you can’t afford one, talk to someone youtrust, such as a close friend or family member. Once you’re confident you’vecreated a solid personal financial plan, put it in motion.

Step 5: Monitor and evolve your financial plan

Your individual financial plan is a “living” document — it’s going to evolve as your financial footing changes. Review your personal financial plan every year or so. Start at the first step to get a snapshot of how your finances are doing, and make any necessary changes to the rest of your plan.

The bottom line

Every time you review your plan, you should seeyou have less debt, more savings, and a return on your investments. Remember tostay the course in your goal to build a solid financial foundation.

Share this

The personal financial planning process in 5 steps - EveryIncome Library (2024)

FAQs

The personal financial planning process in 5 steps - EveryIncome Library? ›

Life cycle financial planning can be separated into five stages: teenage years (13-17 years old), young adulthood (18-25 years old), starting a family (26-45 years old), planning to retire (45-64 years old), and successful retirement (65 years old and above.)

What are the 5 steps of the personal financial planning process? ›

5 Steps of the Financial Planning Process
  • Step 1: Understand your current financial situation. ...
  • Step 2: Write down your financial goals. ...
  • Step 3: Look at the different investment options. ...
  • Step 4: Create and implement a customized plan for you. ...
  • Step 5: Re-evaluate and revise your plan.
Feb 13, 2023

What are 5 stages cycles of financial planning process? ›

Life cycle financial planning can be separated into five stages: teenage years (13-17 years old), young adulthood (18-25 years old), starting a family (26-45 years old), planning to retire (45-64 years old), and successful retirement (65 years old and above.)

What are the 5 components of financial planning? ›

5 Essential Elements of a Comprehensive Financial Plan
  • Investments. Investments are a vital part of a well-rounded financial plan. ...
  • Insurance. Protecting your assets—including yourself—is as important as growing your finances. ...
  • Retirement Strategy. ...
  • Trust and Estate Planning. ...
  • Taxes.
Feb 9, 2024

What are the five steps to effective personal financial planning quizlet? ›

  • Analyze your Current Finances.
  • Develop Goals (short and Long term)
  • Identify and evaluate alternative goals.
  • Implement a plan for achieving your goals.
  • Regulary re-evaluate and revise your plan.

What is the steps of financial planning? ›

This entails identifying your financial objectives, be it saving for retirement, creating an emergency fund, or eliminating debt. When setting these goals, it's vital to consider the timeline for achieving them, along with the necessary resources and strategies.

What are the five financial life stages? ›

We help you enact a plan that keeps you moving forward through the stages of the Financial Life Cycle so you can ultimately reach your goals.
  • FORMATIVE STAGES - AGES 0-19. ...
  • BUILDING THE FOUNDATION - AGES 20-29. ...
  • EARLY ACCUMULATION - AGES 30-39. ...
  • RAPID ACCUMULATION - AGES 40-54. ...
  • FINANCIAL INDEPENDENCE - AGES 55-69.

What are the stages of the financial plan? ›

7 Key Steps of the Financial Planning Process
  • Define your short- and long-term goals. ...
  • Audit your current income, savings, and long-term savings and investing plan. ...
  • Address shortfalls/adjust goals. ...
  • Account for multiple future scenarios. ...
  • Develop a comprehensive financial plan. ...
  • Implement and monitor that plan.
Jun 27, 2023

What is the order of the financial planning process? ›

There are six steps in the financial planning process: understanding your financial circumstances, identifying goals, analyzing your current course of action, developing a financial plan, and monitoring progress and updating. This is a great question to ask if you're considering working with a financial planner.

What are the five 5 elements financial statements briefly explain? ›

The major elements of the financial statements (i.e., assets, liabilities, fund balance/net assets, revenues, expenditures, and expenses) are discussed below, including the proper accounting treatments and disclosure requirements.

Which 5 categories are used in financial planning quizlet? ›

What are the six key components of a financial plan? 1) budgeting and tax planning 2) managing your liquidity 3) financing your large purchases 4) protecting your assets and income 5) investing your money 6) planning your retirement and estate.

What is the step 5 of financial planning? ›

Step 5: Monitor and evolve your financial plan

Review your personal financial plan every year or so. Start at the first step to get a snapshot of how your finances are doing, and make any necessary changes to the rest of your plan.

What are the 5 importance of personal financial planning? ›

When people are earning and saving significant funds, creating a financial plan may not be high on their priority list. But creating a financial plan in the good times can help you through uncertain times in the future, such as the loss of a job, a bear market, high inflation, and more.

What are 4 steps to personal finance planning? ›

4 Steps to Build Personal Financial Discipline
  • Step 1: Create a Realistic Budget. The foundation of any sound financial plan is a realistic budget. ...
  • Step 2: Establish an Emergency Fund. ...
  • Step 3: Prioritize Debt Repayment. ...
  • Step 4: Invest in Your Future. ...
  • Conclusion.

What are the 7 personal financial planning areas? ›

The following are the seven important components of financial planning.
  • Cash flow and debt management: ...
  • Risk management and insurance planning: ...
  • Tax planning: ...
  • Investment planning: ...
  • Retirement savings and income planning: ...
  • Estate planning: ...
  • Psychology of financial planning:
Oct 24, 2022

What are 7 steps in personal finance? ›

7 Steps of Financial Planning
  • Establish Goals.
  • Assess Risk.
  • Analyze Cash Flow.
  • Protect Your Assets.
  • Evaluate Your Investment Strategy.
  • Consider Estate Planning.
  • Implement and Monitor Your Decisions.
  • AWM&T: Your Choice for Financial Fitness.

What is the order of the 5 steps of an enhanced financial counseling process? ›

Financial Planning Process: 5 Simple Steps
  • Step One: Know Where You Stand. The first step to creating your financial plan is to understand your current financial situation. ...
  • Step Two: Set Your Goals. ...
  • Step Three: Plan for the Future. ...
  • Step Four: Managing Money. ...
  • Step Five: Review Your Plan.
Feb 12, 2015

References

Top Articles
Latest Posts
Recommended Articles
Article information

Author: Allyn Kozey

Last Updated:

Views: 5471

Rating: 4.2 / 5 (43 voted)

Reviews: 90% of readers found this page helpful

Author information

Name: Allyn Kozey

Birthday: 1993-12-21

Address: Suite 454 40343 Larson Union, Port Melia, TX 16164

Phone: +2456904400762

Job: Investor Administrator

Hobby: Sketching, Puzzles, Pet, Mountaineering, Skydiving, Dowsing, Sports

Introduction: My name is Allyn Kozey, I am a outstanding, colorful, adventurous, encouraging, zealous, tender, helpful person who loves writing and wants to share my knowledge and understanding with you.