The Process of Building a Financial Plan

In financial planning, it is crucial to have a process put in place to ensure that all the necessary information is collected, and the financial plan remains up to date.

1. Defining Goals: One of the most important steps when it comes to forming a financial plan is to define your goals. As the saying goes “If a man knows not which port he sails, no wind is favorable”. The whole point of a financial plan is to achieve something that is currently not possible. A defined goal can help financial advisors develop strategies to reach the goal but also discover if there needs to be an adjustment to said goal.
2. Taking into account your financial situation: The second step of the financial planning process is reviewing your current financial situation. This would include creating financial statements, such as a balance sheet and a cash flow statement. This is imperative as your current financial situation can greatly dictate what can be accomplished. It may also allow us to see what any deficiencies that can be corrected.
3. Forming a financial plan: Now that both your goals and current financial position are defined, we can work on building out a financial plan. The financial plan addresses all facets of your financial life. It works to optimize your finances. Your financial plan will address any shortfalls, such as an unnecessary life insurance policy, money that you were previously unaware of, or expensive car insurance policies. Once these shortfalls are addressed, all of that unnecessary spending could then be redirected to addressing current issues or goals, such as debt, retirement savings, or college savings. -Amount of risk you are willing to take on -Time Horizon for your goal -What your current financial position can handle
4. Implement financial plan: Once we have worked out all the details, here is where your job begins. The plan must be put into action. If the plan is followed accordingly, there should be no reason that your issues/goals can’t be addressed.
5. Monitoring financial plan and making adequate adjustments: To ensure that your financial plan remains viable, constant monitoring of your financial plan is necessary. As time passes, your financial plan may even need a slight readjustment. This is based on how you have been carrying out your financial plan and how your investments have been performing over time.   
6. Revising and updating financial plan: while the initial financial plan was created to address a particular set of issues/goals, it is extremely common that these issues/goals change with time. Throughout your life, there will be many changes that can cause you to change your perspective. Today’s goals may seem inadequate when revisited. There may be a major life change that redefines who you are as a person and, therefore, how you view your finances. A financial plan is a vehicle that should embody and represent you, no matter what stage in life you may be.