What Are The 6 Key Components of Financial Planning? (2024)

The traditional description of holistic financial planning looks at all these areas of your financial Life:

Cash flow and net worth.
Risk protection strategies.
1. Property casualty.
2. Life insurance.
3. Health insurance.
4. Long-term care insurance.
Wealth accumulation strategies.
Tax-smart investing strategies
Retirement income planning.
Estate planning strategies

What Is The First Step in Financial Planning?

Step 1: Set Goals

I always recommend my clients start by clarifying their financial goals. I encourage families to think about which goals will happen when. Specifically:

What’s your most important financial goal for the next 6 months?
What’s your most important goal in the next year?
What’s your most important goal for the next three years?
What is your most important goal for years three to five?
What’s your most important goal for years five to 10?
What’s your most important goal for more than 10 years from now?

With your goals in hand, I begin to work through the six areas of your financial life to examine how you are doing and what might be improved.

Step 2: Understand Where You Stand Now

Specifically, understand cash flow and net worth. This lets you see what you have in place now, how much money comes in each month and what you spend it on today. Once you know where you stand you can consider what you will adjust to move closer to your next important goal.

Step 3: Risk Protection

Next, we move to risk protection strategies to be sure you are adequately prepared for the certainty that something unlikely will happen. Risk protection is all about preparing for bad events that you hope will never happen. The reason to be prepared is that the bad things are bad enough to blow up your important financial goals – if they happen.

Specifically, the risk protection areas I try to consider include:

Home and Auto insurance.
Life insurance.
Health insurance.
Long-term care insurance.

Step 4: Wealth Accumulation

Next, we look at your savings and investment strategy. Specifically:

How much are you saving? Is it enough?
What do you own in your investment accounts?
- Are you in the right segments of the market?
- Are your various investments appropriately balanced?
- Do you rebalance to your target allocation consistently?
Are you on track to accumulate enough to meet your goals?
What should you adjust to make things better?

Step 5: Tax-Smart Investing

We look at the tax strategy of your investments.

Can you own the same investments in different accounts and improve your tax situation?
Can you reduce your current tax burden?
Can you reduce your future tax burden?
How will taxes effect your distributions and retirement income planning?
Will estate taxes be an issue for your family?

Step 6: Planning for Retirement Income

We look at sources of income and the timing of that income. Specifically:

Step 7: Estate Planning

All families need basic estate documents. Some families need more complex planning. Basic estate documents include:

Last will and testament
Financial power of attorney
Living will and health care directive
Healthcare power of attorney

In some cases, families need more complex planning like:

Planning for minor children
Planning for heirs with special needs
Planning to eliminate estate tax liability
Planning to support valued charities

You can see that holistic financial planning is pretty involved. I recommend you find a trusted, professional fiduciary to help you. A great place to start looking for that person is to talk with a couple CERTIFIED FINANCIAL PLANNER™ professionals.

To find a CFP® professional near you, start your search here.

As you visit with financial planners, I suggest a couple things to check:

Is the advisor always the client’s advocate – a fiduciary advisor?
Is the advisor only paid by clients, not any financial product manufacturer or distribution network? That would be a fee-only advisor.

These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.

A fiduciary, fee-only, CFP® professional can help you make great retirement income choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.

Yes, I am a CFP® professional. I’m always a fiduciary and I work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.

If you would like to talk with me about your situation, follow this link to find a time for us to talk.

If this article has you thinking about your own circ*mstances, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.