5 Essential Steps to the Financial Planning Process

The financial planning process involves five basic steps. After the initial meeting with your financial planner, the five steps to the financial planning process include: data gathering, plan preparation, plan presentation, plan implementation, and on-going monitoring.

1. Financial Planning Process: Data gathering.

Data gathering is a marathon. It usually takes place at your home. It may take two hours or all day. Your planner will need to examine all your documents: Tax returns. Balance sheets. Income statements. Employee benefit plan booklets. Retirement plan documents. Wills. Trusts. Insurance policies. Investment statements. Brokerage house statements. Bank statements. These are the tangible bits of information.

But there’s also subjective information, such as: What are your lifestyle goals? How do you want to distribute your estate? At what age do you want to retire? How much income do you want during retirement? Then there are the assumptions that need to be figured into the whole process. What’s going to happen to interest rates? Where is the economy headed? How much inflation will occur? Your planner will want your feelings on these things to see if expectations are realistic.

Finally, your financial planner will determine your personal attitudes – toward taxes, risk tolerance, complexity/simplicity of your financial affairs. The primary objective of the data gather is to have a clear idea of where you are currently and where you want to head for the future.

2. Financial Planning Process: Plan preparation.

Preparing your plan typically takes three to four weeks, as the planner does an analysis — the diagnostic work. The planner knows where you are, and where you want to be. Now they need to figure out the most efficient way to get you there.

Your planner’s recommendations may be varied and come in the form of partnerships, trusts, corporations, etc… The pros and cons of each scenario will be examined and then prepared into a written report. This report will include major strategic recommendations, as well as minor tactical suggestions. Once complete, all of the parts will fit together to create a comprehensive financial plan.

3. Financial Planning Process: Plan presentation.

After all the recommendations are in writing, your planner will present them to you. During the first interview, they’ll present the plan to you and review the major areas. Then you’ll take the plan home. Read it. Study it. Go over it with your spouse. Jot down any questions you may have about it.

When you meet with your planner again, you’ll review the plan in greater detail. They’ll answer any questions that you have and clarify the details. As you review and subsequently agree to each recommendation, the planner will prioritize them into your “Implementation Checklist.” This becomes a simple “to do” list for you and the planner.

4. Financial Planning Process: Plan implementation.

The first three steps move quite quickly. In fact, you will probably get through them in about a month.

The next step, step four, generally takes much longer – typically around five or six months. During this period, your planner will discuss topics such as tax planning, retirement planning, estate planning, and insurance issues. Other experts, such as attorneys, may be brought in to work on specific aspects of your plan.

When all is said and done, you may have as many as 30 different recommendations in your plan. Some will be major, broad, strategic recommendations, likely worth thousands of dollars to you. The rest will be to help you fine-tune your financial affairs. These things will help you cross the T’s, dot the I’s, and ensure your finances are really in order.

5. Financial Planning Process: On-going monitoring and maintenance.

The final step of the planning process is on-going monitoring and maintenance. Your planner should be retained to assist with periodic updates and on-going advice. Having closely examined your financial situation, the planner is in a unique position to alert you to changing conditions that affect your plan. A couple of time a year, the planner should be consulted on tax planning issues, portfolio review, and other related maintenance topics.

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