What Are The 5 Steps In Financial Planning?

The 5 steps of financial planning, which we’ll go into in more detail below, can be summarized as:


1—Define Your Financial Goals

What Are The 5 Steps In Financial Planning?

You don’t know where you’re going unless you have a map. The Define step is the creation of this map. 

Your financial goals should be:

  • Measurable,
  • Achievable,
  • Clearly defined, and
  • Set in a timeline.

It’s also important to separate your needs from your wants—the former should obviously take priority over the latter.

You will construct this and your financial planner will help advise you throughout the process.

Once it’s complete, it will be documented.

2—Gather Up Your Financial Information

What Are The 5 Steps In Financial Planning?

Your financial adviser can only help you if you’ve provided them with the information they need. This includes things like:

  • Income
  • Expenditures
  • Liabilities & Assets

Another thing your financial adviser will likely want to know is your tolerance/capacity for risk—this is relevant to investment assets, asset allocation for investment, pension goals, etc. Financial planning can also involve some trial and error, and adjustments in your plan will have to be made as the circumstances of your life change. 

3—Analyze Your Financial Information

What Are The 5 Steps In Financial Planning?

Based on the information above, your financial adviser will construct a financial profile.

From there, he or she will give you a number of ratios to help you better understand your financial situation, including what is working and what needs improvement. These ratios include:

  • Debt Service Ratio
  • Liquidity Ratio
  • Savings Ratio
  • Solvency Ratio

4—Developing & Presenting Your Financial Plan

What Are The 5 Steps In Financial Planning?

As the information in step 2 is assessed and the overall analysis is completed in step 3, step 4 involves orienting your financial plan in a way that meets your financial goals outlined in step 1.

This is all based on a number of factors, including:

  • Your annual cash flow report,
  • Your annual consolidated tax calculation, and
  • Your net worth statement.

You and your financial adviser will go over and discuss this report and, once everything looks like it’s in place, you will both sign it.

5—Implementation & Review

What Are The 5 Steps In Financial Planning?

Implementing your financial plan may mean a lot of things, like changing how you spend your money, new pension or investment strategies, a change in your debt provider, changes or additions to your insurance, and/or adjustments to your income and expenditures.

Throughout this process, your personal financial adviser is your guide—he or she will coordinate with you, along with other professionals like investment managers and accountants, to ensure that the plan is being put effectively into motion. 

As for the review aspect, it’s important to remember that financial planning is not a set-in-stone kind of thing—it’s dynamic, on-going, and may need revisions and updates as your financial and/or life circumstances evolve. This is why annual reviews are so important.

Don’t Put It Off

There is never a bad time to start planning financially for your future, both the short and long term. 

Once you’ve set a sound financial plan in place—fully documented and signed by you and your financial advisor—you will have everything in place to build yourself financially and achieve your life goals.