Financial planning describes the process of mastering your money. It means figuring out where you actually are and how you’re going to get your finances to where you want them to be.
It can entail:
Financial planning can look different depending on the situation.
If you’re aiming to get your whole life in order, it could be a major undertaking—entailing finding a professional planner, gathering all your account statements and information, having a series of meetings with your planner, and slowly making major changes over time.
But it can also be something that you do on your own or you do only to tackle one specific problem area. If you spend a half hour filling out a budgeting worksheet or setting up an app to track your spending, you’re doing financial planning. And you can often hire a planner to help you with just one particular area of concern—such as coming up with a plan for paying off your debt or optimizing your investment mix.
Different planners may have different areas of expertise. And some won’t be able to help with everything. (Many planners are limited in how much advice they can give you on taxes, for example.) But some of the topic areas planning may cover include:
If you’re doing planning on your own, then you drive the process. If you decide to work with a professional, the process may look like this:
Step 1: Find a planner, do some due diligence, and make sure he or she is a good fit in terms of expertise and personality.
Step 2: Decide together what your aim is. Are you only going to tackle one or two specific issues or everything? Are you going to work together indefinitely or only for a set period of time?
Step 3: Figure out what your goals are for your money. You probably want to retire in comfort one day. Maybe you also want to eventually buy a vacation home or help your kids get through college.
Step 4: Gather all the relevant information on your finances.
Step 5: Hand that information over to your planner, who will do some numbers crunching and analysis.
Step 6: Listen to your planner’s conclusions and recommendations. Maybe you need to tweak your investment mix or save more in your Roth IRA. He or she could also have some reality checks for you—such as if getting that vacation home isn’t going to happen.
Step 7: Put those recommendations into action. Maintain any changes you’re making, and check back in on your situation periodically. Rinse and repeat.
Whether done on your own or with a pro, planning is one of the best things you can do for your finances. Some of the benefits are:
Financial planning is the process of finally getting organized, really looking at your money, and figuring out what you need to be doing differently. You can do financial planning on your own or with a professional. In either case, it’s a great way to help your finances be all that they can be. Future you will thank you.