Speak with an Expert

+44(0)203 637 6137

Request an

Get Appointment
Steps of Financial Planning

Financial Plan is the main document that determines whether or not your business idea is going to be able to attract any investment or required funding options.
The 6 steps of financial planning are used by the best financial planners, when creating and implementing financial plans for their clients. However, these steps can and should be followed by every investor.

Step 1: Establish the Goal / Relationship
This is where the adviser introduces himself or herself and typically explains the financial planning process to a client or prospective client. The adviser may ask open-ended questions to uncover anything and everything from immediate financial goals to feelings about market risk to dreams about retiring in the Caribbean.
The purpose of establishing the goal or relationship is to form the foundation or purpose of planning itself–to begin the financial journey with the clarification of a financial destination. Too many people save and invest money with no specific goal in mind. Going a bit deeper, too many people have financial destinations but these goals are not their own; the goals are whatever the so-called conventional wisdom has taught. The purpose of money must follow the purpose of life, not the other way around.

Step 2: Gather the Relevant Data
This step is where the information required to make recommendations for the appropriate strategies and financial products to reach your goals is gathered. For example, what is your time horizon? Do you want to accomplish this goal in five years, 10 years, 20 years, or 30 years? What is your risk tolerance? Are you willing to accept a high relative market risk to achieve your investment goals, or will a conservative portfolio be a better option for you?
For example, if you are gathering data for retirement planning, you’ll need to know your annual income, savings rate, years until proposed retirement, age when you are eligible to receive Social Security or a pension, how much you’ve saved to date, how much you will save in the future, expected rate of return and more.

Read More  6 Steps in writing a winning business plan

Step 3: Analyze the Data
You’ve gathered the relevant data, now analyze it! Following the retirement planning example, the data you’ve gathered can help you arrive at some basic assumptions. Let’s assume you have 30 years until retirement, you’ve already saved $50,000, you expect an 8.00% return on your investments, and you can save $250 per month going forward.
If you don’t have a financial calculator, you can analyze the data with a financial calculator or you can go to one of many online calculators, such as Kiplinger’s Retirement Savings Calculator, plug in the numbers and see if your retirement nest egg will be just right for you.

Step 4: Develop the Plan
Let’s say you need $1 million to reach your goal. The previous assumptions (in Step 3: Analyze the Data) brought you just $100,000 short at around $900,000. If you can handle taking more market risk, you could increase your exposure to stocks in an aggressive portfolio of mutual funds and assume a 9.00% rate of return.
Financial planning requires devising alternative solutions that are achievable for each individual. With so many different variables to consider, your plan needs to develop, to evolve with your needs but remain within your capabilities and risk tolerance.

Step 5: Implement the Plan
Now you simply put your plan to work! But as simple as this sounds, many people find that implementation is the most difficult step in financial planning. Although you have the plan developed, it takes discipline and desire to put it into action. Saving $250 or $300 per month may be difficult. You may begin to wonder what may happen if you fail. This is where inaction grows into procrastination. Successful investors will tell you that just getting started is the most important aspect of success.
You don’t need to start out at a high level of savings or at an advanced level of investment strategy. You could learn how to invest with just one fund or you could start saving a few dollars per week to build up to your first investment.

Read More  Components of a Business Plan

Step 6: Monitor the Plan
It’s called “financial planning” for a reason: Plans evolve and change just like life. Once the plan is created, it’s essentially a piece of history. This is why the plan needs to be monitored and tweaked from time to time. Think of what can change in your life, such as marriage, the birth of children, career changes and more. These events all require new perspectives on life and finance. Now think of financial changes beyond your control, such as tax law changes, interest rates, inflation rates, stock market fluctuations, and economic recessions.
Nothing remains constant except change!
Life changes, laws change and so will your plan. But, once again, this is why it’s not called financial plan, it’s financial planning!

For advice and assistance in relation to discussing the topic covered above or queries concerning an ongoing investment, fundraise, writing a business plan or information about starting or growing your business; please contact our team in London on 0203 637 6365 or via our enquiry form.

Leave a Reply

Your email address will not be published. Required fields are marked *

Please enter valid mobile number