Online you will find many people who claim to be financial experts that can help you plan for your future. Unfortunately, it’s difficult for most people to discern which of these “financial experts” actually have the needed experience and education for the job and which are simply fraudsters claiming to have professional knowledge.

One way to separate the fraudsters from the actual experts is by taking a look at how they offer to manage your finances. Typically, people with serious backgrounds and proper education follow dedicated principles with which they do their job. One such example is the seven steps to financial planning that Certified Financial Planners (CFPs) follow. The Certified Financial Planner Board approves these steps as part of the Code of Ethics and Standards of Conduct. They are considered to be a standard practice that financial experts maintain. 

In order to help you manage your financial planning better, this article will give an overview of these seven steps. This knowledge will help you find the proper financial guidance for your situation and will also enable you to understand the decisions a financial planner might make.

All About the 7 Steps to Financial Planning

You already know that this financial practice consists of seven steps. A financial planner’s main goal is to help determine your current financial status and goals so that, in the end, instruments can be implemented to help measure performance against the goals that were already set. 

Step 1: Understanding the Current Financial Situation and Future Goals

Financial experts that follow the CFP guideline will start by asking questions that will help them understand more about who you are and what you want to achieve in the future. Some of the questions are qualitative and aim to help the financial expert understand more about your values, concerns, future plans, goals, and current financial plan. 

Other questions can be considered quantitative as their aim is to help determine your income, expenses, savings, and any assets or liabilities that you may have. Here, the financial expert will also try to learn more about the taxes you pay, the employee benefits you have, your insurance package, etc. 

During this first step, the advisor will try to get a clear understanding of what you hope to achieve with your financial plan. If they’re true professionals, they will want to make sure that they have all the necessary information about you, from your financial goals to your risk tolerance and even what your dreams are. 

Step 2: Identifying and Setting Goals 

In this step, any good financial advisor will rely on their experience and expertise and aim to help you identify realistic goals. In this phase, they will likely ask you clarifying questions in order to make the goals as clear as possible. In step two, it’s typical to hear questions such as: “By when do you want to accomplish these goals? What’s your risk tolerance? Are you willing to accept more risk if it’s also an opportunity to reach your goals faster?” 

After having a clear picture, the financial advisor will help you identify and prioritize each of your goals so that the plan can be made accordingly.

Step 3: Analyzing the Current Financial Plan 

During step three, the advisor will want to take a look at how you’re currently managing your finances and whether you’re on the right path to achieving your goals. If it turns out you’re not in the best position, then the financial advisor will propose new courses of action and clarify the pros and cons of each one so you can make informed decisions about what’s best for your situation.

Step 4: Develop Recommendations for Financial Planning 

A good financial planner will select up to three recommendations for ways in which the client can achieve their goals. Then, they will propose those recommendations to the client while considering: 

  • What assumptions were made that led to the development of the particular recommendation?
  • How can the recommendation help the client reach their goals?
  • How can it be integrated with other aspects of the client’s financial plan?
  • How high-priority is the recommendation?
  • Whether it can be implemented on its own or it has to be a part of a package with other recommendations.

Step 5: Presenting the Financial Recommendations to the Client 

In this step, the financial advisor has to summarize all recommendations and present them to the client in the best possible way. Here, it’s vital for every recommendation to come with an explanation — how did the financial planner conclude that it’s the right one? What goal will it help achieve? How important is it for this recommendation to be implemented?

Providing all this additional information is crucial, and it’s a sign of a true professional. By discussing all these recommendations with the client, they can also participate actively in the decision-making process and better understand their financial plan and the state of their account. 

Step 6: Implementing the Recommendations

Implementing the recommendations means finally putting the plan to work. Many people consider this step to be the easiest one. However, that’s far from the truth. In fact, many financial advisors will tell you that the implementation phase is perhaps the most complex and time-consuming part of the entire financial planning process. 

That’s because, even though you have a developed plan, it takes a lot of discipline and motivation to implement it. If people don’t see results immediately, some start to lose the desire for action — which can quickly become procrastination — and they may end up backing out or not following through with an important recommendation.

With that said, if a client has an agreement with their financial planner that he or she will take responsibility for some action on their account, it’s essential that all parties are aware of what actions are acceptable and what boundaries are in place.

Step 7: Monitoring the Process and Making Necessary Changes 

Financial planning is not something you can do once and forget about. The situation in the world is constantly changing — new technologies arise, wars happen, and financial crises occur. Additionally, your personal situation changes simultaneously. You switch jobs; maybe you start earning more or less, you get older, your priorities start to change, etc. Consequently, financial planning is a never-ending process. Over the course of a few years, you will have to revisit your financial plan and make necessary changes to it so that it continues to serve its purpose. 

Every new event in your life may require a change in your financial plan, from getting married to starting a company. Additionally, all of the things that fall outside our control, like tax laws, inflation, deflation, stock market fluctuations, and so on, have to be considered, and their influence on your financial plan has to be monitored. 

That’s why it’s even more important that you choose a financial planner that you will work with for a long time. They should be someone who you can trust, who has your best interest at heart, and who is a true professional that adapts your plan to any situation. 

At Alpha Wealth Funds, all our financial planners have proven experts who follow CFP guidelines and who truly take the time to get to know each client and understand their goals. The CFPs at Alpha Wealth Funds have combined decades of experience in different industries, and we are ready to help you protect and grow your wealth.

In Conclusion

Having a financial plan for your future is of vital importance if you want to spend your retirement in peace. Knowing your financial goals and having a way to reach them gives you a sense of stability and a sense of purpose since you know that you’re taking steps toward your goals each and every day.

That being said, a good financial plan needs a proper financial planner — a person who’s a proven expert and knows the right way to go about achieving financial goals and sustaining a successful plan.

In this article, we discussed the seven steps to financial planning as per the CFP Board. Knowing these steps will enable you to do a bit of planning on your own, but it will also help you separate the real financial planners from the fraudulent ones that can be found in far too many places.