Financial Planning: The Ultimate Guide

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Katherine Gustafson is an author and personal finance expert from Portland, Oregon. She writes about investing for Wealthsimple as well as having written for Forbes, Business Insider, TechCrunch, and LendingTree. Katherine is a past recipient of the Izzy Award for outstanding achievement in independent media. She has a BA from Amherst College and an MA from Boston University.

Financial planning may sound intimidating—there’s a lot to cover, after all, including budgeting, retirement planning, and debt management. But it isn’t just a subject for money experts; anyone can get a firm grasp of all the concepts involved. This guide will give you insight into how to design your financial life for maximum sustainability.

That’s not to say you should go it alone. It’s best to work with an expert financial planner or wealth manager on this process. A financial advisor will be able to create a customized plan designed specifically for your needs. You’ll then be able to receive ongoing advice and have a place to turn when you have urgent financial issues to discuss. Of course financial planners and advisors charge fees—sometimes pretty steep ones—for their words of wisdom, but that advice might save you a lot of money in the long run.

There are many reasons that financial planning is a worthwhile investment. The most powerful? It increases your ability to manage your cash flow—your income and spending—so that you can better handle daily and occasional expenses without worry. With a better grip on cash flow often comes the availability of extra disposable income, allowing you to invest the money or use it in other ways that will enhance your financial well-being.

If you’d like to learn more about financial planning, check out these in-depth articles on these related topics:

What is financial planning?

Financial planning is an organized assessment of one’s financial situation in order to plan out actions and approaches needed to reach financial goals. This can encompass something as simple as figuring out how to make your paycheck last until the next one and budgeting for unexpected expenses. But it can get as complex as planning retirement, buying life insurance, and investing in the stock market and other financial products.

Financial planning ideally takes every aspect of your financial life into account. Here are some of the issues and topics you’ll need to look at as you asses your relationship to money and the actions you need to take to meet your goals:

  • Budgeting

  • Managing spending

  • Debt mitigation

  • Saving for middle-term goals

  • Investing

  • Inheritance

  • Retirement

  • Insurance

  • Charitable giving

While making your first financial plan is a big investment of time and energy, it isn’t an end point. It’s more of a carefully built foundation that you can use to grow your financial health through constantly monitoring and tweaking the plan to accommodate your changing life circumstances and needs.

Think of financial planning as more of an ongoing process than as an event that you do once and wash your hands of. If you’re doing it right, you’re regularly planning and constantly monitoring your financial situation.

How to create a financial plan

Establishing a solid financial plan starts with thinking about what you want your future to look like and then involves looking at how your income can support those goals. Here are some basic steps for financial planning that can help you approach the process:

1. Set your goals:

You can’t plan your financial strategies until you know what you need or want your money to do for you. Ask yourself open-ended questions: Do you want to buy a home? Do you want to have a family? Do you want to travel? When do you want to retire? What do you want out of retirement? Write down your answers with as much specificity as you can muster.

2. Quantify your goals: 

Estimate your cost of living in retirement and how many years you might need that amount after you retire. Tally up the cost of having the children you want to have or buying the house you’d like to buy. There are various ways of quantifying all these things; the trick is to get a tangible sense of what money you need for each of the things you want to do.

3. Record your financial information:

Put all of your data in one place. This will include items like your monthly income and details of your monthly expenses, the size of your overall debt and the interest rates on your debts, the amount of equity in your home and the size of your mortgage, your savings and investments, and the premium and value of your life insurance plans. The things in this list will vary depending on your situation and the details of your financial life.

4. Make a plan:

Now it’s time to analyze your financial situation to judge what you’ll need to do in order to meet the goals you’ve established. If your income won’t stretch to allow you to amass the savings you’ll need for certain things, think about ways you can increase income or decrease spending in order to have more disposable cash to save for the future. Your plans should account for immediate, mid-term, and long-range goals.

5. Take action:

Start following your plan, including daily budgeting, contributing to savings, and paying down debt systematically. You may not hit every mark perfectly each day or month, but as long as you continue to make consistent progress toward your goals and continue to improve your accuracy, you’re on the right track.

6. Monitor and reassess:

Financial planning is a dynamic process—you have to constantly keep abreast of changes in your situation or your goals and tweak your plan and execution accordingly. Life has a tendency to shift and change, bringing your new challenges and fresh goals; make sure your financial planning changes with it.

This process can be as simple or as complicated as you want to make it. It’s a good idea to make it sufficiently robust that you have a full picture of your financial situation; otherwise you’re not playing with a full deck.

Financial planning tools

There are a slew of tools online that can help with your financial planning—from free tax calculators to college savings analyzers. Many of these tools are free, though they vary in reliability. Other tools, such as budget tracking software, may require a subscription, but the expense is likely worth it for the great control over your money these tools provide.

Here are some free tools from the Choose to Save® public financial education program, among others:

There are also many comprehensive and useful tools to help you track your daily spending; some of these you have to pay for, but it may be worth it.

Of increasing popularity is another type of financial tool called a robo-advisor. This is sophisticated software that does the job of a financial advisor for a much lower fee than most human advisors charge. In some cases, as with Wealthsimple, these digital advisors pair robotic investing services with human input to answer questions.

How to find a financial planner

When looking for a financial planner, it’s important that you source and vet them carefully. Look for an advisor who classifies as a fiduciary, which means their priority is benefiting you, not making money off commissions. Fiduciaries work on a fee-only basis, so be skeptical of any planners who appear to be offering you services for free or who aren’t up front about their fiduciary status.

There are a variety of associations and listings you can search to find an advisor who may work for you. Try one of these options:

Once you’ve located some advisors you find promising, learn more about them and search for any red flags on the U.S. Security and Exchange Commission’s Investment Adviser Public Disclosure website.

You can also schedule an intro call with your prospective planner to get a sense of their personality, approach, perspectives, and principles. Financial planning is a fairly intimate process so it’s important that you feel comfortable with and trusting of the professional you choose. It’s worthwhile to interview several planners before deciding on the one to work with.

How to get free financial planning

The Internet is chock full of places, such as this site, where you can get free advice about financial planning and investing. Any topic you need answers on is probably addressed at length somewhere or other, though of course you need to vet your sources carefully and take most advice with a grain of salt. Financial planning is a highly personalized process, so some advice that applies to one investor might not work for you.

Some financial planners may offer to give you advice for free or for a very low fee, but be aware that they’re only doing this because they are able to receive commissions from companies that they steer you towards. If an advisor offers you “free” advice to put your money in a specific savings product, chances are that person is going to be paid by the company that sells that product.

The firm where you invest your retirement savings or other funds may have advisors who will give you advice as part of their service to you, especially if you’re investing for retirement through an employer program. Check with the company in question regarding the advising services they offer and if you have to pay anything extra to access them.

Some automated investing services offer you the services of a human financial planner, so you can get free advice as you pursue your automated investment strategies. These aren’t technically free since you’ll be paying fees on the money you invest with the service, but the advice doesn’t cost extra. Going this route can be a good way to get real, thoughtful advice and also manage your investments for a single, reasonable rate.

Wealthsimple makes savvy investing simple and affordable, mixing robo-adivising with the real-world smarts of human advisors. Start your financial planning off with a portfolio review with one of our Wealthsimple advisors.

Last Updated August 24, 2022

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