The 7 Steps of Financial Planning

Learn How to Plan Your Finances Like the Pros

Professional Certified Financial Planners (CFPs) use a structured, seven-step process to develop customized financial plans for their clients. These steps serve as practice standards established by the Certified Financial Planner Board of Standards (CFP Board) and are designed to ensure that all financial advice meets ethical and professional guidelines.

When both the planner and the client agree to include these standards in their engagement, CFPs must follow them as part of the Code of Ethics and Standards of Conduct.

However, you don’t have to be a professional to benefit from this process. Individuals can also learn and apply these same steps to act as their own financial planners, using a proven framework for managing money, setting goals, and tracking progress.

What Are the 7 Steps of Financial Planning?

The financial planning process begins with understanding a person’s current financial situation and their goals, then moves toward creating actionable recommendations and continually reviewing progress. Each step builds on the previous one to create a complete, evolving financial strategy.

1. Understand the Client’s Personal and Financial Circumstances
2. The planner gathers details about the client’s finances — income, expenses, debts, assets, insurance coverage, and risk tolerance — as well as personal factors like family situation, career, and lifestyle.
3. Identify and Select Goals
4. Together, the client and planner define clear, measurable, and time-specific goals, such as buying a home, funding education, or preparing for retirement.
5. Analyze the Current Course of Action and Explore Alternatives
6. The planner assesses whether the client’s existing financial habits and strategies will achieve their goals and identifies alternative approaches that could lead to better outcomes.
7. Develop Financial Planning Recommendations
8. Based on the analysis, the planner creates a tailored plan with detailed recommendations — such as adjusting savings, changing investment strategies, or restructuring debt.
9. Present the Recommendations
10. The planner clearly explains the proposed plan, ensuring the client understands the reasoning, benefits, and potential risks before taking any action.
11. Implement the Recommendations
12. Once the client agrees, the planner helps put the plan into motion. This might involve opening investment accounts, adjusting insurance policies, or setting up automatic savings contributions.
13. Monitor Progress and Update as Needed
14. Financial planning is ongoing. The planner regularly reviews the client’s progress, tracks results, and updates the plan as life circumstances, goals, or market conditions change.

Note:

The CFP Board defines financial planning as “a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances.”

Step 1: Understanding the Client’s Personal and Financial Circumstances

The first stage in the financial planning process is all about getting to know the client — both personally and financially. A Certified Financial Planner (CFP) begins by asking a series of thoughtful questions to gain a full picture of the client’s life, values, and current situation.

Some of these questions are qualitative, meaning they focus on personal details that shape financial decisions. These may include:

1. Health and family situation
2. Career and earnings potential
3. Core values and lifestyle priorities
4. Risk tolerance and comfort level with investing
5. Short- and long-term goals
6. Existing financial habits or plans

Other questions are quantitative, focusing on the numbers behind the person’s financial life, such as:

1. Income, expenses, and cash flow
2. Savings and investments
3. Assets and liabilities
4. Taxes and insurance coverage
5. Access to employee or government benefits
6. Estate and retirement plans

Advisors often use open-ended questions to draw out deeper insights. A conversation might explore topics like how a client feels about market fluctuations, what retirement looks like to them, or whether they dream of one day buying a second home by the beach.

Once all this information is gathered, the planner carefully analyzes the client’s financial data to form a complete and accurate understanding of where they currently stand and what changes might be needed.

Example:

If the client is planning for retirement, the planner will need to know details such as annual income, current savings rate, number of years until retirement, the age at which they’ll receive Social Security or pension benefits, total savings so far, future contribution plans, and the expected return on investments. This information creates a solid foundation for the next steps in the financial plan.

Step 2: Identifying and Selecting Goals

Once the planner understands the client’s circumstances, the next step is to define clear, achievable financial goals.

The advisor uses their expertise to guide the client through goal-setting by asking clarifying questions like:

1. What is your time horizon? (Do you want to reach this goal in 5, 10, or 30 years?)
2. What is your risk tolerance? (Are you comfortable with higher market risk for potentially higher returns, or do you prefer a more conservative approach?)

Together, the client and planner prioritize these goals — deciding which objectives are most important and most urgent. For instance, paying off high-interest debt might take priority over saving for a vacation, or building an emergency fund might come before investing heavily in the stock market.

This collaborative step ensures that the financial plan aligns with the client’s values, timeline, and comfort level, setting the stage for actionable recommendations in the next phase.

Step 3: Analyzing the Client’s Current Course of Action

Once the planner understands the client’s situation and goals, the next step is to evaluate their current financial strategy. The advisor examines whether the client’s existing actions are effectively moving them toward their objectives.

If the current approach isn’t sufficient, the planner identifies alternative strategies and clearly explains the pros and cons of each. This allows the client to make informed decisions about potential adjustments or new approaches.

Step 4: Developing Financial Planning Recommendations

After analyzing the client’s situation, the planner develops specific recommendations designed to help achieve the client’s goals. Each recommendation is carefully evaluated based on:

1. The assumptions underlying the recommendation
2. How well it supports the client’s goals
3. How it integrates with other financial plans the client has in place
4. Its priority level relative to other recommendations
5. Whether it requires implementation alongside other actions

This step ensures that each suggestion is practical, actionable, and tailored to the client’s unique circumstances.

Step 5: Presenting the Financial Planning Recommendations

Once the recommendations are prepared, the planner presents them to the client. This includes the reasoning behind each suggestion and how it can help meet their financial goals.

The goal of this step is to ensure the client fully understands their options so they can make well-informed decisions about which recommendations to follow.

Step 6: Implementing the Financial Planning Recommendations

Implementation is where the plan comes to life. While creating a plan may be straightforward, many people find implementation to be the most challenging step. It requires discipline, commitment, and follow-through.

If a CFP is responsible for implementing certain recommendations, the planner will clarify exactly which steps they will take on the client’s behalf.

Note: Successful financial planning often starts small. You don’t need a large initial investment or a complex strategy. Even beginning with a single fund or saving a few dollars per week can lay the foundation for long-term success. The key is to just get started.

Step 7: Monitoring Progress and Updating the Plan

Financial planning is a continuous process. Life changes, and so should your plan. A financial plan created today is essentially a snapshot of your current circumstances. Monitoring ensures the plan remains relevant as circumstances evolve.

Life events such as marriage, children, career changes, or unexpected expenses may require adjustments. External factors — including tax laws, interest rates, inflation, market fluctuations, and economic recessions — can also impact your plan.

Your CFP works with you to review progress, assess whether goals are being met, and recommend updates or changes as needed. This ongoing collaboration keeps your financial plan aligned with both your personal life and broader economic conditions.

The Bottom Line

Understanding the seven steps of financial planning gives you a framework to manage virtually every aspect of your personal finances. You can apply these steps to areas such as:

1. Insurance planning
2. Tax planning
3. Cash flow and budgeting
4. Estate planning
5. Investing
6. Retirement planning

While it’s possible to handle financial planning on your own, professional advisors can provide valuable guidance, expertise, and an objective perspective on your situation.

Whether you choose to go it alone or work with a financial planner, the key is to revisit your plan regularly. Major life events or financial changes — such as marriage, having children, career shifts, or market fluctuations — may require adjustments. Many professional planners recommend reviewing and updating your plan at least once per year to ensure it continues to meet your goals.

Frequently Asked Questions (FAQs)

What is financial planning?

Financial planning is the process of identifying your short- and long-term financial goals and creating a strategy to achieve them. It can be done independently or with the help of a professional, such as a Certified Financial Planner (CFP).

Tools for financial planning include budgeting software, debt management calculators, investment trackers, and retirement planning resources. While individuals can handle straightforward situations themselves, a professional can provide expert advice, help navigate complex finances, and offer a neutral perspective — especially useful if you have substantial assets, multiple financial goals, or want guidance on investment and tax strategies.

How much does a financial advisor cost?

Financial advisors charge fees using different structures:

1. Flat fees: A one-time or annual fee for financial planning services.
2. Percentage of assets: A fee based on a percentage of the client’s investment portfolio that the advisor manages.
3. Hybrid approach: Some advisors combine both methods, charging a flat fee for creating the plan and an ongoing fee for managing investments.

Choosing the right fee structure depends on your financial needs, the complexity of your situation, and the type of services you want.

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