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.
Key points covered
- An overview of the key stages of the financial planning process
- How to get an understanding of your current financial position
- Why setting clear goals is key for achieving financial success
- How regular reviews and adjustments to you plan will keep you track
- The role of a financial planner and how they can help you
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.
Article FAQs
Here are some answers to questions you may have after reading the guide to the financial planning process.
What is the financial planning process?
The financial planning process is a structured approach to managing your finances. It involves several stages like information gathering, goal setting, and analysing your current financial positions.
Working through the financial process will help you understand where you are, where you would like to be and the steps to get there.
What are the key steps of the financial planning process?
Here’s a few bullet points to remind your of the key stages of the financial planning process, mentioned earlier in this article.
- Gathering all of your financial information for review
- Setting short, medium and long term financial goals
- Reviewing your current financial position
- Making tailored financial recommendations
- Implementing your financial plan
- Reviewing it & adjusting your plan at regular intervals
Why is financial planning important?
Whether you work with an adviser or do it yourself, financial planning is crucial as it helps you establish and set short, medium and long-term goals, such as paying off debt, retirement or buying a home.
Furthermore, it provides clarity, security, and a structured approach to managing your finances. As a result, this helps provide financial stability and preparedness for life’s uncertainties.
How does a financial planner assist in the financial planning process?
Some of us like to manage our own finances and work towards our own goals without any external support. On the other hand, some choose to work with a professional to guide them towards the financial future they desire.
A financial planner can play a key role by helping to establish your goals and analysing your current financial position using cash flow modelling software.
Furthermore, their role covers making tailored recommendations, investment planning, and conducting regular reviews to adjust the plan as needed.
What type of recommendations do they make?
Firstly, it’s important to state that all recommendations are aligned with your goals and available financial resources.
If you are seeking to build wealth, they will likely recommend a range of investments, aligned with your attitude to risk. On the other hand, if retirement is your focus, they will guide you toward your goals for later life, by recommending tax efficient investments such as pensions.
Lastly, if financial security is front of mind, a financial planner can recommend and suggest various policies. These could include income protection and critical illness cover to protect you and your family against any redundancy or long term poor health.
How often should I review my financial plan?
It is recommended to review your financial plan at least annually or whenever significant life changes occur. This could include such as a new job or change of salary, receiving an inheritance, or dealing with redundancy.
Regularly reviewing your financial plan ensures it remains aligned with your goals and adapts to any changes in your financial situation.
If you work with a financial planner, it’s crucial to let them know of any significant life changes. They have to skills and experience to help you deal with a change of circumstance – whether it’s positive or negative.
