The 6-Step Approach to Financial Planning

The Canadian Association of Financial Planners (CAFP) summarizes the financial planning process in six key steps: The following is partially adapted from material on the CAFP and FPSC websites at www.cafp.org and www.cfp-ca.org respectively.

1. Your Present Situation

This step summarizes where you are today. Your present situation is a result of the cumulative effects of all of your financial decisions and transactions that has occurred in the past up until the present time.

Your present situation is clarified by collecting and assessing all relevant financial information including:

• Net worth and cash flow statements
• Insurance policies
• Tax returns
• Investment portfolios
• Pension plans
• Employee benefit statements, etc.

In addition to itemizing all basic family information:

• Name
• Age
• Marital status
• Employment history
• Details of children’s birth dates and other qualitative data.

2. Identify Your Goals and Objectives

These considerations are important in determining the best financial planning strategy for you to implement by identifying both your financial/personal goals and objectives as well as clarifying your financial/personal values and attitudes. These may include:

• Providing for your children’s education
• Supporting elderly parents
• Relieving immediate financial pressures

Goals should be:

Specific: Otherwise they are not goals, they are merely dreams.

Measurable: Financial goals are easily measurable since dollars and cents can be counted.

Realistic and attainable: In order for a goal to be achieved, it must be within the realm of reason.

Time Bound: All goals should have a time horizon in order to track progress towards the goal’s completion and to provide you feedback.

3. Identify Problems

This step includes identifying any financial obstacles to achieving your financial independence. Problem areas can include too little or too much insurance coverage, or a high tax burden. Cash flow may be inadequate or the current investments may not be winning the battle with changing economic times. Problem areas must be identified before solutions can be found.

4. Design the Plan

Once any problems are identified, written recommendations and alternative solutions can be provided to you. The length of the recommendations will vary with the complexity of one’s situation, but should always be structured to meet your needs without undue emphasis on purchasing certain investment products.

5. Implement the Plan

This step involves assisting you in either executing the recommendations or in coordinating their execution with other knowledgeable professionals. A financial plan is only helpful if the recommendations are put into action. Implementing the right strategy will help you reach your desired goals and objectives.

6. Periodic Review

Your financial situation should be re-assessed at least once a year to account for changes in your life and current economic conditions. Periodic review and revision of the plan to assure that the goals are achieved will be provided.