13 Basic Steps to Successful Financial Planning

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Financial planning is a broad term touching all areas and stages of your personal life as long as money is involved—from your needs to your wants. This includes different aspects such as accumulating income streams, budgeting, debt management, savings, insurance, retirement planning, investments, and estate planning and distribution. Hiring a financial planner is convenient but costly. Before getting one, learn the basics of financial planning first.

Just the Nuggets

  • Financial planning is a process that must align with your personal goals and be present throughout all life stages.
  • To be financially stable, fulfill the hierarchy of needs using the financial planning pyramid as a guide. It starts with protection, savings, wealth accumulation, then wealth distribution.
  • The basics of financial planning can be summarized in 13 steps. The most crucial step starts with goal setting.

A Long-Term Money Management Process

To understand the basics of financial planning, let’s look into this definition.

“Financial planning is a process, not a product. It is the long-term method of wisely managing your finances so you can achieve your goals and dreams, while at the same time negotiating the financial barriers that inevitably arise in every stage of life.”

The Financial Planning Association®️ of Minnesota
Financial planning must align with your personal goals

There’s no one-size-fits-all financial plan for everyone. There are no package plans, either. Your financial plan is your roadmap towards your dreams. You’re the best person for the job.

Financial planning is present throughout all life stages

The process is a cycle you’ll have to recalibrate with each financial barrier that comes along with life changes. For example, your financial plan might work for now as a young single adult. But once you become a parent, your goals will change too. So will your financial plan.

Financial planning is a process, not a product

The process can be learned slowly, one step at a time. However, if you learn much better with a financial planner to guide you, make sure it’s someone you trust and entirely comfortable with.

Further Reading:
Right-Brained? Left-Brained? Financial Planning Demands The Perfect Balance by Jeff Bernier CFP®, ChFC, CFS (TandemGrowth Financial Advisors)

The Financial Planning Pyramid 

The financial pyramid is the most fundamental financial planning basics designed like Maslow’s hierarchy of needs. To be financially stable, one must fulfill the basic needs first at the bottom tiers before advancing to more complex needs as you go higher.

1. Protection

Before stacking up your assets, build a solid foundation first by protecting your income, your wealth, and most importantly, your health. All of which can be protected by different types of insurance plans. More about insurance plans later.

2. Savings

Financial security is actively achieved by setting aside extra money regularly into a savings account. One indicator of being financially stable is having accessible funds stashed in a bank in case of emergencies like sudden sickness of a loved one or home repairs. Aside from emergency funds, this tier also includes cash and debt management like budgeting and controlling your cash flow.

3. Wealth Accumulation

The key to wealth accumulation is continuously buying different kinds of assets as investments. Although understanding the stock market is a challenge, there are powerful reasons why a lot of smart investors find success in it. Depending on your risk tolerance profile, you can invest in low-risk index funds and mutual funds or in high-risk stocks and real estate.

4. Wealth Distribution

As Robert Kiyosaki said:

“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”

Leaving a legacy before you die makes living the most worthwhile. You’ll learn later about estate planning involving wills or trust funds for your loved ones or charity foundations. Other than the estate, you can also pre-arrange administrative and legal tasks in case of near-death situations.

Read more about the Financial Planning Pyramid here.

Basic Steps to Successful Financial Planning

1. Set your financial goals

The first step is always the hardest, so take as much time as you can with goal setting. To start the train of thought, think about the financial milestones you’ve achieved in your life so far. This would inspire you to either create new ones or change and have a better vision in life. Start answering invigorating questions like:

  • How much do you want to earn per year? $100,000, $500,000, or $1 million?
  • At what age do you want to retire? What does your dream retirement look like?
  • At what age do you want to be financially independent?
  • How much do you want your assets to bring in every year so you would no longer have to work?
  • Do you need a financial coach?
  • What would your start-up business be?
  • How much should you save for your kids’ education fund? For your travel fund? For your retirement fund?
  • What kind of insurance will you get first, and why?

These are just some of the questions that can spark your excitement and awaken your ambitions. 

After you’ve listed as many as you can, give a timeline to each so you’ll know which ones are long-term or short-term goals. Lastly, choose the top 5 from each and write down compelling reasons why you commit to achieving these goals. Never mind the hows; the whys of a goal will provide you a sense of purpose.

2. Financial assessment

The next step in the process is to gather and assess all the financial documents you have.


If you have an insurance plan, conduct a policy review with a trusted financial advisor to determine the protection gaps. If you don’t have any insurance plan yet, list down all of your assets that need protection. Keep a record of family members and desired beneficiaries ready.


List down all types of savings accounts you have and know how much money you stored in each one. If you don’t have an account yet, just indicate the amount of cash you have on hand. Also, print out credit card statements and take note of the payment dues and particulars of expenditures. 

Wealth distribution

Get the latest statements of account from your current investments. Compile all your investments in one portfolio.

Wealth accumulation

Keep your legal documents such as wills, trust documents, power of attorney, and others in a safe place. 

To help you organize all of these, the Personal Financial Workbook by the American Consumer Credit Counseling (ACCC) is a helpful tool for understanding your current financial situation.

3. Consider getting a financial planner

If dealing with all of what has been discussed so far is too overwhelming, then you may consider hiring a financial planner. Certified financial planners undergo rigorous training and gather years of experience before passing the Certified Financial PlannerTM exam.

According to an article in Business Insider, the fee for creating a financial plan in one or two sessions is around $100 to $300 per hour. For more frequent consultation during the implementation of the plan, the fixed fee costs around $1000 to $3000. Before you hire one, know the proper questions to ask when prospecting.

4. Track your cash flow

For a month-long test run, track every penny that comes in and out of your wallet—in any form like an investment portfolio, bank account, or cash wallet. Do this exercise without self-judgment as much as possible. At the end of the month, you will find out where most of your money is spent on. This will also reflect on your money personality—are you a saver, a spender, or a breadwinner?

Track your cash flow in any way that works for you. You can download mobile apps, create an Excel spreadsheet, or jot them all down with pen and paper. 

5. Budgeting

Aside from your goals, the cash flow determines how your financial plan should be developed. Just by knowing your annual income and monthly expenses, you can determine financial planning basics like:

  • emergency funds—3x to 6x monthly expenses
  • income protection—5x annual income
  • life insurance—10x annual income
  • retirement—20x annual income

Creating a budget is not just tracking your cash flow alone. It’s a money management tool that reduces expenses and maximizes savings for your financial goals. If you have a deficit or your surplus is not enough to allocate for savings and investments, you should adjust your budget plan by prioritizing the needs over the wants.

6. Manage your debt

If you had overdue credit card bills before, you’ll pay the interest that could range from 11.7% to 13.09%, according to an article in Business Insider. So never be late on your credit card dues because it will cost you a fortune. Before allocating to savings, make sure to clear your debt first. You can start with the highest interest rate first. Then, limit your credit cards to just one for necessary spending. 

7. Open and manage a savings account

All the essentials about what savings accounts are for, the types of savings accounts, pros and cons, how to open a savings account, and good saving habits are discussed in How Savings Accounts Work.

8. Determine your net worth

Source: Corporate Finance Institute

Net worth is the difference between your assets—stuff you own that increase value over time like cash deposits, investments, real estate properties, cars, and even other tangible properties like jewelry and household items—and liabilities, stuff that decrease value over time and take money out of your pocket like mortgages, loans, and credit card debt. 

This figure is often required when you’re applying for a loan or an insurance plan. Ultimately, it is an indicator of a person’s overall wealth and financial status. As a rule of thumb from Thomas J. Stanley and William D. Danko’s The Millionaire Next Door, your net worth should equal your age times your pretax income divided by 10.

9. Risk management

An insurance plan is a risk management technique that allows you to share the risks (e.g. accidents, disabilities, dreaded diseases, calamities, and sudden deaths) with a credible insurance company. You pay premiums—regular payments to an insurance company—in exchange for guaranteed financial aid in case unfortunate events happen. The most common types of insurance are listed below. 

  • Life insurance – protects your income against unforeseen events like accidents, disabilities, dreaded diseases, and sudden death.
  • Health insurance – protects you from healthcare-related bills.
  • Car insurance – protects your vehicle, you, and your family members from car accidents.
  • Education insurance – protects your kids from student debt.
  • Umbrella insurance – protects you from lawsuit liability.

A detailed discussion of each is covered in Types of Insurance and Why You Need to Get Them.

10. Retirement Planning

Preparing for your retirement is a long-term preparation that can run for 20 to 40 years while still earning an active income. You can open a 401k plan with your employers where a fixed percentage of your pretax income will be allocated to your employer-sponsored retirement account. 

On top of a 401k plan, retirement planning also includes long-term investments, variable universal life (VUL) insurance—life insurance with an investment-linked component, and estate planning—the process of designating your beneficiaries if you become disabled or after death. Saving to invest will allow your money to grow with time, so it can catch up with inflation. 

11. Investments

Investing is putting something of value to an asset today in exchange for higher returns in the future. Provided that you have solid and reliable investments, the longer you wait, the greater your returns would be. 

Listed below are different investment vehicles you can consider. 

  • Stocks or equities – partial ownership issued by public corporations as a way of raising capital.
  • Bonds and other fixed-income instruments – loans you give to government bodies or corporations for a fixed amount of time. On the maturity date, you’ll receive a guaranteed return of the initial amount you’ve invested plus the interest rate.
  • Real estate – includes properties like apartments, condominiums, building spaces, pieces of land, and many more.
  • Other tangible assets – include equipment, machinery, jewelry or precious metals, art pieces, commodities, and other collectibles.

A detailed discussion of each is covered in Understanding Asset Classes.

A common mistake for beginner investors is confusing investing from trading—both of which are closely related terms. Knowing the difference is key to positioning yourself to a better advantage.

12. Estate planning

The first step in estate planning is to make an inventory of your wealth through financial statements to include both tangible and intangible assets. Tangible assets are physical assets like securities (e.g. stocks, bonds, and cash), land properties, equipment, and vehicles. On the contrary, intangible assets include intellectual properties (e.g. patents, copyrights, trademarks, goodwills).

It’s best to hire an attorney to give you legal expertise when it comes to trust funds, wills, medical, and financial representation. They are knowledgeable about state laws and how to work around them to cater to your preferences legally. According to LegalMatch, an attorney can cost anywhere from $200 to $2000. It would be best to search for estate plan fee schedules from specific law service companies. 

A sample price list from Flat Law Fees with offices located across New York and New Jersey is shown below.

Standard or Simple Final Will & Testament$750 – $1000
Complex Will and TestamentsStarts at $1500
Durable Power of Attorney with Statutory Gifts Rider$150
Medical Order for Life Sustaining Treatment (MOLST)$350
Do Not Resuscitate (DNR) $350
Power of Attorney + MOLST + DNR$750
Living Will / Health Care Proxy$750 – $1000
Wills & Healthcare Bundle$2000 – $2500
Living TrustsStarts at $3000
Estate Planning BundleStarts at $4500
Source: Flat Law Fees

13. Financial review

Lastly, financial planning takes time and commitment. The basics of financial planning are presented step-by-step for easier footing, but it’s an iterative process. Periodic check-ups must be conducted to recalibrate your financial health. 

Closing Notes

With these financial planning basics, you’re on your way to take control of your financial life. The process may be daunting at first, but with practice and continuous learning, slowly you’ll achieve all tiers of the financial planning pyramid and become financially free and independent.

Our References and Further Readings

American Consumer Credit Counseling. (2013). 20 Steps to Financial Health: Achieving Lifelong Financial Fitness. Retrieved on 10-Nov-2020.

Financial Planning Association of Minnesota. (n.d.). What is Financial Planning?. Retrieved on 11-Nov-2020.

American Consumer Credit Counseling. (n.d.). Financial Education – Budgeting. Retrieved on 12-Nov-2020.

Staff Writers of (2020). How to Become a Certified Financial Planner. Retrieved on 12-Nov-2020. 

CNN Money. (2003). Cheat Sheet for Millionaires: Financial Rules of Thumb. Retrieved on 12-Nov-2020. 

Flat Law Fees. (n.d.). Estate Planning Lawyer. Retrieved on 12-Nov-2020. 

Jaclyn Wishnia. (2020). How Much Does an Estate Lawyer or Probate Lawyer Cost?. Retrieved on 12-Nov-2020. 

David McDaniel. (n.d.). The Cost of Estate Planning: How Much Will You Pay?. Retrieved on 12-Nov-2020. 
CNN Money. (2017). Hiring Financial Help: How to Hire A Financial Planner. Retrieved on 12-Nov-2020.

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