Which step in the financial planning process is often the most difficult to complete?

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6 Important Steps for Effective Financial Planning
Identify your goals
Collect financial data
Analyze the data
Develop short term and long term plans
Put the plan into action
Monitor your plans
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What is the most difficult step in financial planning?
What is the most important step in the financial planning process?
Why financial plan is hard?
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6 Important Steps for Effective Financial Planning

Financial planning, contrary to popular belief, doesn’t only apply to wealthy people. One does not have to be rich to enjoy the benefits of this process. In fact, most of us do some sort of financial planning in ways that we don’t realize. But what exactly is financial planning?

Financial planning is the process of managing one’s finances and overcoming financial barriers to achieve your goals. Trying to make ends meet and stretching your budget until your next paycheck is an example of financial planning. If you have long term financial goals to achieve, now is the best time to start financial planning. Take a look at the following important steps to help you get started.

Identify your goals

Establishing your goals is the very first step to effective financial planning. Identifying goals means defining the purpose of planning. Many people make the mistake of starting their financial journey without setting specific end goals. Before you start the financial planning process, think about your personal life goals. Do you want to own a home, or buy a car? Do you want to have kids? What age are you planning to retire?

Asking yourself questions like these will help you define the purpose of having financial plans. It will serve as your guide in identifying the financial steps and tools required to achieve these goals.

Collect financial data

Gathering financial data is an important step to help identify the strategies applicable to your goals. The data a person needs to collect may vary depending on the specific financial goals they have. For example, say that you are planning to buy a house or apply for a mortgage. Some of the things you have to keep track of are the amount of savings you already have, your annual income, the amount of money you can pay for the loan on a monthly basis, etc. You may already know this information off the top of your head, but it’s always better to have them written down. It will give you visibility over everything that needs consideration before making critical financial decisions.

Analyze the data

Now that you have all the information you need, it’s time to do an analysis. For example, how are you going to pay for the down payment required for the mortgage? Is your savings enough? How long can you sustain the loan payments with your salary? And so on. By analyzing the data you have gathered, it will be easier to determine whether your goal is achievable or not. Or if it is, it will help you figure out how long it’s going to take to reach your goal.

Develop short term and long term plans

An example of a short term plan is creating and following a budget. As for the long term plan, it may include working on reducing credit card usage or other high-interest debts to pave the way for long term savings. Just take note that these plans may have to be revised or modified along the way. Changes may be necessary depending on how these plans are working according to your goals and needs.

Put the plan into action

After finalizing your plans, it’s time to put them to work. It’s easier said than done. In fact, the implementation is usually the most challenging part. Many people procrastinate or get discouraged in the middle of their financial journey. So, if you want to be successful in reaching your financial goals, know that it takes a lot of discipline and motivation to keep going.

Monitor your plans

Adjustments may be needed in the financial planning process. Some things may have to be updated when there are significant changes in your life that impact your finances. Examples of these events include marriage, having kids, changes in career and a lot more!

Reaching financial goals isn’t always easy, especially when you don’t know where and how to start. Use these financial planning tips and get started on the path to making your goals a reality!

Want to work on growing your savings? Calcite Credit Union is the best place for you! Please feel free to give us a call. One of our representatives will be more than happy to assist you.

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Posted at 10:00h in Finances

Previously, in Five Interview Questions to Ask a Financial Planner, I addressed some simple but important questions that should be answered prior to hiring a planner. After you’ve successfully vetted and found a financial planner, you may be wondering what the financial planning process looks like?

Financial goals are unique, and thus a financial plan will mean different things to different people. A plan may focus on saving for retirement, saving for education, debt repayment, cash flow and budgeting, etc. Ultimately, the focus will depend on your unique goals.

The financial planning process, as defined by the Certified Financial Planner Board of Standards, Inc. (CFP Board), consists of seven steps. A CERTIFIED FINANCIAL PLANNER™ professional will follow this roadmap, while integrating your unique personal and financial circumstances. The seven steps, and what to expect with those seven steps, are:

Understanding the Client’s Personal & Financial Circumstances: A financial planner will obtain not only quantitative information detailing your financial situation, but also (and equally important) qualitative information. The qualitative information provides the context for the financial plan, and details important information such as your health, life circumstances, goals, needs, priorities, etc.

Identify and Select Goals: Once your unique financial circumstances have been identified, the financial planner will work with you to identify and prioritize your financial goals. Financial goals may be short-term or long-term, or likely, a combination of both.

Analyze the Client’s Current Course of Action & Identify Alternative Courses of Action: After your information has been gathered and your goals identified, your planner will bring the information together to identify the probability of meeting your goals. If goals cannot be met, or if changes need to be made, the financial planner will identify alternative options.

Development of Financial Planning Recommendations: After your financial circumstances and goals have been analyzed, and appropriate courses of action identified, the financial planner will detail recommendations and next steps to be followed as you look to pursue your financial goals.

Presentation of Financial Planning Recommendations: Once analysis is complete and recommendations are built, the financial planner will then present and share the recommendations with you. The recommendations will detail actionable items that will help you pursue your goals. The final presentation may be in printed form or digital, or a combination of both.

Implementation of Financial Planning Recommendations: After the recommendations have been shared, the financial planner will collaborate with you to implement and complete the recommendations and next steps. Goals may not be pursued right away, and often recommendations are steppingstones as you work towards your goals.

Monitoring of Progress & Updates: Financial circumstances and goals are fluid, and constantly change over time. The financial planner will work with you to identify who has responsibility for monitoring financial progress and updates going forward.

The above steps help ensure a consistent financial planning process amongst CERTIFIED FINANCIAL PLANNER™ professionals. Although experience and style may differ, the process should remain the same. The journey can take time, as evidenced by the multiple steps in the financial planning process, and often requires continued collaboration and teamwork to ensure goals are met.

Ultimately, a financial plan is a means to an end, and serves as a roadmap to reference and utilize while working towards your financial goals.

JAY A. NEARY, CFP®, IS A FINANCIAL CONSULTANT WITH SVA WEALTH MANAGEMENT.

What is the most difficult step in financial planning?

Implementing the plan means putting the 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. You may begin to wonder what may happen if you fail.

What is the most important step in the financial planning process?

While setting goals is a key part of the financial planning process, implementing your plan and working to meet those goals may be the most important step.

Why financial plan is hard?

Financial planning in business is difficult because so many variables affect the company's financial results, and each of them is hard to predict. Consumer behavior is especially hard to predict – how well customers will respond to both the company's products and the price being charged.