If you feel like your financial situation is a mess, you’re probably right. In fact, if you don’t feel absolutely comfortable with your personal finances, there’s probably something you could be doing to improve your finances. In either case, the financial planning process probably can help.
It doesn’t necessarily mean that you have to hire a financial planner, although many people do. But if you don’t hire someone to help you build a good financial plan, then you’ll need to take the time to educate yourself about how financial planning works.
What is financial planning?
Financial planning process
According to the Certified Financial Planner Board of Standards, there are 7 steps to the financial planning process:
- Understand the client’s personal and financial circumstances
- Identify and select goals
- Analyze client’s current course of action and potential alternatives
- Develop financial planning recommendations
- Present financial planning recommendations
- Implement financial planning recommendations
- Monitor progress and update
In other words, financial planning is an ongoing process. If you’re currently struggling to get a handle on your cash flow, today’s financial plan will probably include things like budgeting and establishing an emergency fund.
But as you resolve the short term goal of having enough money to pay current bills, you may start to look to the future and wonder about long-term financial goals. You might start thinking about:
- Setting up an investment portfolio
- How to contribute to your 401k or IRA to lower your tax bill and have retirement income
- Buying a life insurance policy to protect your loved ones
Generally accepted financial planning topics
In the world of financial planning, you might find professionals that only focus on one aspect of finances, like investments or insurance.
But a comprehensive financial plan should cover all aspects of your financial situation. The major topics that apply to all situations might include:
For certain situations, financial planning might include:
- College planning
- Business planning, especially for small business owners
- Special needs planning
Having a good financial planning process in place has 5 key benefits. We’ll go over each of these benefits in detail so you can visualize how your life might be better with financial planning.
Financial Planning Benefit #1: You are able to set and achieve financial goals
For people who decide to start without working with a professional financial planner or financial expert, this is the first step towards establishing a better financial future.
Goal setting is literally part of the financial planning process.
As previously mentioned, the CFP Board considers goal setting one of the most crucial steps in the financial planning process. And this enables you to start taking control over your financial situation.
Setting your own goals starts to put control of your life in your hands.
The best part about setting financial goals is that they’re your goals! At each stage of life, your goals might change–they should. But a clear financial plan will include achievable goals that give you a sense of accomplishment.
The sense of accomplishment from achieving financial goals carries over into other parts of your life.
This sense of accomplishment feels similar to other aspects of your life. This might include:
- Personal fitness goals
- Education goals
- Professional goals
The point is that just taking that first step of establishing financial goals can be empowering. And that can provide inspiration for you to learn more about how to more forward.
Financial Planning Benefit #2: You feel empowered through financial literacy
When you set achievable financial goals, they might be easy, at first. Saving money usually requires discipline to control discretionary spending like eating out, entertainment, or fancy clothes.
But there comes a point where you might need to learn more than you currently know. And it’s absolutely possible. There are plenty of financial resources for you to learn as you take control over your finances.
You don’t need a financial planner to do this.
In fact, many people who do their own research find that they don’t need a financial planner. They self-educate on many of the topics that a financial advisor would help them with, and are very competent.
Just like the neighbor who prides himself on their meticulously maintained lawn, or the workout stud who is passionate about maintaining peak physical performance, any person can manage their own money, make smart decisions, and create their own investment strategy.
But most people don’t have the time, energy, or interest to:
- Dig through all the information that’s out there
- Sort the accurate information from a lot of garbage being peddled by hucksters
- Apply their financial knowledge to creating their own financial plan, AND
- Balance the rest of their life’s priorities
In fact, this is a common reason people hire financial professionals.
Many people find that a good financial planner helps take the weight off their shoulders.
Some people are simply overwhelmed, under a lot of stress, and need a professional to help them establish their financial priorities. Others might need very specific help.
For example, a successful business owner is more likely to hire tax professionals to help take taxes off their plate. That way, they can focus on achieving their business goals.
When I worked with financial planning clients, I found that many of them knew as much about taxes as I did (even though I’m an enrolled agent). Some of them know just as much about investment strategies and evaluating insurance products as I did.
But what many of these people wanted was for someone to:
- Take a detailed look at their entire situation
- Give financial advice tailored to their individual situation
- Help them with things like:
- Making important investment decisions based on their investment strategy
- Selecting the right insurance coverages
- Social Security planning
- Evaluating long-term care options
- Actually doing the heavy lifting on things they didn’t want to do, so they can focus on the big picture
In other words, they didn’t want to be aloof. They simply wanted to control what they focused on, and delegated the unimportant stuff to their financial planning team.
A good financial planner helps educate and empower their client.
A good financial planner helps their clients feel like they’re in the driver’s seat. And the entire goal of financial planning, with or without a financial planner, is exactly that.
When you feel in control, you’ll feel that your quality of life is improving.
Financial Planning Benefit #3: You experience improved quality of life
This is a natural outcome of taking control of your finances. Your life starts to feel better, as you start making progress on the financial priorities and executing your long-term financial plan.
It might be as simple as getting rid of that student loan debt. Or buying your first house. Regardless, that sense of progress exists because you’re making progress.
Finances have been shown to be linked to mental health
This doesn’t mean that every rich person is of sound mind. But the opposite does have some truth to it.
People who are experiencing financial difficulty are more likely to be stressed, and have mental health challenges.
But when you start to take control of your finances, indicators usually mean that things are looking up. That definitely helps to give you peace of mind.
Financial Planning Benefit #4: You have peace of mind through financial security
Peace of mind comes hand in hand with financial planning because you’re in a stronger position than you were before. So you’re more prepared for the unexpected.
You are prepared for unexpected circumstances
Emergency fund? Check. Estate plan? Check. Providing for loved ones if something happens to you? Check.
As you proceed through the different aspects of the financial planning process, you’ll identify and address each of these unexpected circumstances that might occur. And when you do this proactively, you’re less likely to get caught off guard.
You don’t need to worry about being caught off guard by major financial decisions
Working with a financial planner, many of these decisions are brought up by the planner in a structured environment. That way, you can discuss the pros and cons of these financial decisions, the financial impact of each decision, and how they fit into your financial plan.
And when you do this for a long enough period of time, you can achieve financial independence.
Financial Planning Benefit #5: Being financially independent means you can choose the work activity you WANT to pursue
Financial independence simply means that you’ve reached a point where you no longer have to work for compensation. People who are financially independent have the ability to live without having to work.
But that doesn’t mean you have to retire. If you love your job, like Warren Buffett, then there’s no reason to stop.
But perhaps you’ve been interested in something else. Achieving financial independence through proper financial planning can help you do that.
Financial planning can provide so many benefits. Many people pursue financial planning based on topics of interest to them. But hiring a financial planner can help most people reach their financial goals without the drudgery of having to do it all yourself.
If you liked this financial planning article, check out our financial planning archives!
After retiring from a 24-year career as a Naval officer in 2017, Forrest became a financial planner to help people achieve success in managing their personal finances. In 2022, he sold his partnership stake in his financial planning firm to focus on helping people full-time through his writing.
Featured in: Forrest’s writing has been featured in the following publications: Forbes, Military.com, NerdWallet, Yahoo Finance, The Military Guide, The Military Wallet, Christian Science Monitor, and many other publications.
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