The financial planning process – a short guide
If you want to get to grips with your personal finances, or are looking to the future, this is a handy guide to get you on the right track. In today’s short 3-minute read, we offer insight into the financial planning process.
We have written this article assuming a financial planner is involved during this process to offer insight into their role and the benefits of working with one.
That said, if you are a DIY financial enthusiast, there are plenty of actionable insights throughout this article.
What is financial planning?
Financial planning is a strategic approach to managing your money, matching your resources with your goals to build a stable and fulfilling financial future.
This can include saving towards an early retirement, building wealth, and gaining clarity on your potential long term financial position. Furthermore, overpaying a mortgage and taking out protection policies to guard against life’s unknowns are all areas of a personal financial plan.
Stages of the financial planning process
The financial planning process has several key stages:
- Initial information gathering & fact-finding
- Setting financial goals & benchmarks
- Analysing your current financial position
- Making recommendations & implementing the plan
- Reviewing & monitoring
In the following sections of this article, we take a concise look at each stage of the financial planning process.
Initial information gathering – fact finding
Understanding your current financial position is crucial. A financial planner looks at your income and outgoings, savings, investments, pensions, and debts, creating a detailed snapshot of your money.
A key part of the process is understanding your attitudes toward investment risk. This allows a financial planner to make appropriate recommendations you’ll be comfortable with, in areas such as pensions, ISAs, and other investments.
Setting financial goals
A financial planner works with you to identify and define your financial goals, hopes, and dreams.
These goals become the key to your personalised financial plan.
Typical goals could be:
- Buying your dream home
- Achieving financial independence
- Retiring early
- Buying an investment property
- Saving for university fees
Of course, everyone’s goals are unique, so a financial planner will take the time to understand yours and set you on the right path.
Looking at your current financial position
By using a cash flow modelling tool, a financial planner can review and analyse your financial data. This helps to work out the best way to achieve your goals and looks at immediate, short-term, and medium-term changes as needed.
They can take a long-term view of your finances based on the information you gave them and use the cash flow model to see the impact of overpaying a mortgage or increasing pension contributions, for example.
Producing recommendations & implementing the plan
Based on your goals and financial position, a planner makes tailored recommendations. This could involve investing in a pension, putting money in an ISA, paying off debt, or making mortgage overpayments. Each recommendation will work towards reaching your unique goals and dreams.
Once agreed the financial planner will put the plan into action. This phase ensures your next financial steps are in the right direction. They handle the entire process, and will communicate all relevant information and updates.
Related reading: Seasonal financial planning for 2024
Reviewing & monitoring
Financial planning is not a one-off activity. Regular reviews check how the plan is going and changes can be made if necessary. The plan can be adapted as time passes and life and goals change.
The importance of client communication
Open communication is key.
It is important to let your financial planner know if your situation changes—be it a job loss, receiving an inheritance, or promotion. This approach allows the financial planner to adjust the plan and suggest changes if needed.
The financial planning process – summary
The financial planning process is a dynamic and collaborative journey. By setting clear goals, using accurate financial data, and being open, you can be confident of a secure financial future.