Financial planning steps toward a
Having a general idea of the financial
planning steps will help you understand where you're going and why some
steps must be done before other.
The International Organization for Standarization (ISO)
is the largest body which develops and publishes International
Standards and has published the standard ISO 22222:2005 Personal
Financial Planning - Requirements for financial planners.
In ISO 22222:2005, there are six financial
planning steps which we will describe below. However, keeping in
mind that this standard's document is developed for professional
financial planners, we've modified the description and order of
each step to make it simple to apply to your personal situation.
Step 1 - Gather information and
determine goals and expectations.
In this step you gather the facts you need to
take a snapshot of your present financial situation or that of
your family. You will want information such as: bank accounts,
bank loans, credit cards, pension savings plans, income tax
returns, investments, insurance policies, will, professional
services receipts, etc.
This photograph with be developed in your
personal (or family) balance sheet and budget.
Once you have gathered all this information you
can begin to build the dream you want for your life and using
these dreams develop reasonable objectives.
Step 2 - Analyze and evaluate your
In the second financial planning step and with your balance sheet, budget and goals you'll
begin an evaluation of your financial situation. In general
you'll be looking for answers to these questions:
- Given my present financial state, can I reach my objectives?
All, or just partially? Which ones? Why?
- What are the obstacles which lay in my path?
In this stage you'll do a basic analysis of
risks to identify those which could prevent you from getting what
Step 3 - Develop your financial plan.
Once you know the risks which can prevent your
from getting where you want to go, your plan can be built on a
firm foundation. In other words you know where to focus your efforts.
All that's needed now is to decide where to begin and to do so later we'll use the guide of the financial planning pyramid.
The general idea is that you go step by step from the
basic protection, through increasing riches and finally passing
on the fruit of your labor to your loved ones. In other words from your financial security plan to financial freedom.
Step 4 - Implement your financial plan
If all you do is plan it won't do you any good.
Putting your plan into action needs enthusiasm, commitment and
In this step it is normal to seek the advice of
other professional like insurance agents, tax specialists,
financial planners, etc. to act on certain parts of your plan.
After all, you shouldn't try to manage your finances on your own but as a team to achieve better results.
The big difference is that when you have a plan,
or at least an outline, you know before you start what you want
and your basic needs so that your relationship with any one of
these professionals is on your terms. And believe that makes the difference, I assure you.
Step 5 - Monitor your financial plan
Measuring your progress and making adjustments
to your plan is very important because both the circumstances
under which you made you plan, together with your life itself are
constantly changing. What do you do if you learn that
you're about to have triplets when you were planning to have a
baby? It may be great news, but it is also a motive to multiply
at least some parts of your plan by three. As such, your
financial success will depend on how quickly you can adapt to
Ideally you should monitor your plan monthly or
perhaps semi annually, but, at least, once a year. Adjust your
objectives, evaluate possible new risks and take action according
to the circumstances.
Also, you need to be prepared for time when
things don't turn out the way you plan. It's impossible
that everything turns out perfectly, but this is no reason to
lose heart but, instead, attempt to make the best of the
opportunities which turn up every day. Besides, when the
unexpected happens we can fact it in the best way with our plan
in hand and be thankful we have it.
Now that you understand what are the steps in
financial planning and what you need to do for each, you have a
general idea of the financial planning process. Is it easy?
Not really. Can you do it? Absolutely!
"The journey of a thousand miles begins with one step"
Lao-tzu Chinese philosopher (604 BC - 531 BC)
Wait a minute! Didn't we say there were six
financial planning steps? You're right, and the sixth
step is ...
Step 6 - Define and establish your relationship with a
This is the first of the financial planning steps described in the ISO 22222:2005
mentioned at the beginning and it
applies when you decide that you'll need the services of a financial planner.
In this case, you need to clearly state the conditions under
which you will both work.
We've left this step to the last because it is
difficult to decide whether or not you need a financial planner
if you don't at least know what involves the financial planning steps. Now
you certainly have an idea of what this entails.
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