Financial Planning Process
Financial planning is a process of pursuing your life goals through the proper management of your finances. The financial planning process, as defined by the Certified Financial Planner Board of Standards, consists of the following six steps:
- Understanding Your Circumstance
- Identifying and Selecting Goals
- Course of Action: Current & Alternatives
- Developing Financial Planning Recommendations
- Presenting Financial Planning Recommendations
- Putting the Plan in Motion
- Monitoring and Updating the Financial Plan
It is important to fully understand your current personal, professional and financial circumstances. Some examples of information needed include your age, marital status, dependents, income, expenses, assets, liabilities, tax situation as well as more qualitative information such as your health, life expectancy, family circumstances, values, attitudes, expectations, earnings potential, risk tolerance, goals, needs, and priorities.
We help you identify goals, noting the effect that selecting a particular goal may have on your other goals. We help set reasonable assumptions and estimates, which may include life expectancy, inflation rates, tax rates, investment returns, and other material assumptions and estimates.
We also help you select and prioritize your goals.
Our next step is to analyze your current course of action and compare that with several potential courses of action. This means determining the advantages and disadvantages of each and whether an alternative course helps maximize the potential for meeting your goals.
As a Certified Financial Planner™, we then must “select one or more recommendations designed to maximize the potential for meeting your goals.” We may come to the conclusion that continuing on your current course is the best option or we may determine that a few adjustments are in your best interest.
We then present and review our recommendations with you, going over all assumptions and rationale for the recommendations we are making.
Together, we will decide which steps, if any, we want to take. This allows us to get the plan going! At this point, we will identify, analyze and then select various actions, products and/or services that best meet your goals. We communicate what we are responsible to do and what you will be responsible to do.
Sometimes this step is overlooked, but it is often the most important step in this process. Plans change. Goals change. Life happens. It is best for us to establish responsibilities for who is going to monitor the plan and how often. Staying in touch and updating important information is crucial to the long-term success of your Financial Plan.