The Definitive Financial Planning Checklist: 8 Essentials

Written by Andy Lubben, Regional Director | Partner

We all know how important financial planning is. A financial plan acts as a guide as you go through your life’s journey. It helps you stay in control of your entire financial picture so you can achieve the goals you’ve set for yourself and your loved ones. When you’re ready to sit down to make a financial plan, you’ll likely have a general idea of what you want to accomplish. Perhaps you want to review your cash flow or make adjustments to your retirement plan. However, you can’t always properly evaluate specific aspects of your finances without looking at the bigger picture. The following 8 components are essential to creating the comprehensive, holistic financial plan you need.

8 Core Components for a Financial Planning Checklist

What should be included in a financial plan? The answer varies for each person, but there are general types of assets, processes, and concepts that apply to nearly everyone. Here are 8 components we recommend for every financial planning checklist:

1. Define Financial Goals – Start with the end in mind. What are your financial goals? You may think making as much money as possible sounds good. But this isn’t a strong start to a sound financial plan, because it avoids the question of what your ultimate purpose for all that income is. Instead, establish end goals that show what you need to achieve (e.g. retirement 10 years from now). Make your goals measurable and concrete. Remember: if you aim at nothing, you will hit it every time.
2. Create a Net Worth Statement – When making a financial check-up list, you need to know where you are starting. The simplest way to do this is to create a net worth statement that accounts for all of your assets and liabilities. For example, how much do you have in your bank account? How much do you have invested for retirement? How much debt are you carrying? What is the value of your tangible assets such as cars and houses? Calculating all of these different factors should give you a number that shows your current net worth (i.e. your starting point). By checking off these first two steps, you’ve already figured out where you are now and where you want to end up.
3. Begin Cash Flow Planning – Cash flow planning is essentially another way to say “budgeting.” It’s very important you have a clear understanding of how much money is coming in and how much is going out. At the end, it’s not about what you earn, it’s about what you keep. Debt planning and management are also essential parts of cash flow planning. For example, do you want to accelerate debt payments? Even if you don’t, you need to understand how much debt you have, your Annual Percentage Rate, and how it affects your cash flow. It’s best to pay off higher-interest debts sooner, but you can also focus on smaller accounts so you can get faster improvements to your cash flow.
4. Review Your Retirement Plan – It’s never too early to start planning for retirement—whether choice or necessity ultimately determines when you leave the workforce. For that reason, reviewing your plan for retirement should be part of any financial health checkup. These questions are key: How much do I need for retirement? How much am I saving right now? Finally, am I on track to reach my retirement goals?
5. Rebalance or Reallocate Your Investments – Investment planning is certainly an important component of a financial planning checklist, but focusing on return alone cannot be the driving force of the plan. For instance, if your goal is to retire and educate your children, and you could accomplish these goals with a 7% return, should you take on the added risk of investments with the potential for a 12% return? Probably not. It’s not a good strategy to reach for excess gains if it increases your chances of falling short of the minimum you need. Remember to weigh the risk factors of different investments and focus on the return required to meet your most important goals.
6. Analyze Your Risk Tolerance – Risk tolerance is a big piece of anyone’s financial puzzle, and not just when it comes to investing. You need to review all of your insurance policies. This may include health insurance, life insurance, home insurance, and auto insurance—just to name a few. After reviewing your policies, make sure you have enough coverage to minimize your financial risk when life throws you a curveball.
7. Review Your Estate Plan – What is your estate plan? Do you have a will? What is going to happen when you pass away? Have you assigned trustees or guardians for children? Answering these estate-related questions is a vital component of a financial planning checklist. A formal estate plan is particularly valuable if you have more assets. However, wills and guardians for children are relevant considerations for people in any tax bracket. In any case, remember that estate tax is the only optional tax. If your estate is exposed to it, you can choose to pay it or plan your way around it.
8. Review Your Tax Plan – Tax planning is crucial to every part of your financial plan, from investments and cash flow to estate and retirement planning. In most cases, people end up leaving money on the table simply because they don’t do a regular tax assessment. With the help of a financial advisor or tax expert, you can develop a tax plan that saves you money and helps you reach your goals.

What are the dangers of not having a financial plan?

Sitting down to make or review a financial plan may seem like a pain to some, but I cannot stress enough the importance of maintaining an up-to-date strategy for your finances. In doing so, you will maximize your chances of achieving your goals.

The importance of using a financial advisor for financial planning:

You may know how to go to the gym and work out. But if you really want to have the best chance of getting your desired results, you hire a personal trainer to push you, keep you accountable, and check in with you regularly. They don’t teach you how to lift weights. You probably already know how to do that. Instead, they work with you to set goals and then work toward them.

A financial advisor is very similar. A big part of the planning process is figuring out what you need to work on. An advisor gets to know your financial situation (oftentimes better than you do) and helps you reach your goals. With comprehensive financial planning, a financial advisor can understand how and why you spend money, and then help you get the most out of every dollar. A good advisor can also help identify and address red flags as they arise. In tax planning, there are a lot of areas that people miss. From helping you manage your budget, optimize your investments and minimize taxes, to identifying financial risks and developing an estate plan, an advisor can step in, identify potential issues, and provide the solutions you need.

Reach out to one of our advisors today to learn more about financial planning and/or to begin your financial planning journey. Contact Merit Financial Advisors today!