What Is Financial Planning? | Bankrate

Financial planning is any type of strategizing around the financial aspects of your financial life. These areas range from the basics such as budgeting to more complex areas such as saving and investing for retirement as well as estate planning for the distribution of your assets. In short, if it involves finances, then there’s a way to plan for it and optimize the outcome.

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Here’s what financial planning is all about and what you need to know to get started.

What is a financial plan?

A financial plan can help you direct how you organize your finances, from the small, short-term questions to the big, long-term issues. The plan can be as big and complex as you want it to be, or as simple and straightforward as you like – so long as it helps you improve your finances.

A financial plan can help you get your financial life in order in areas such as:

  • Budgets – How much can you spend this week or month and still stay on track?
  • Debt reduction – How much do you need to pay down and how can you do it?
  • Retirement – How much do you need to save from each paycheck to retire comfortably?
  • Investments – How can you save and invest to grow wealthy?
  • Taxes – How can you minimize your tax bill and ensure the money is there when you need it?
  • Insurance – How can you get the right coverage at the right time?
  • Estate planning – How will you distribute your assets to your loved ones?

These are some of the largest issues when it comes to financial planning. And the plan can be as “big picture” or “little picture” as you want to make it. But here’s the point: The plan needs to provide the path for you to meet your financial goals, including helping to motivate you.

Types of financial planning

Financial planning can be broken down into categories depending on the type of activities.


Budgeting revolves around the day-to-day and week-to-week choices that impact your finances, starting with your income and moving to your spending. A budgeting plan can help you understand where your money is going and how you can adjust your spending to meet your goals. Good budgeting is the “blocking and tackling” of good financial habits, and you can really only build wealth when your spending is below your income.

Debt reduction

If you’ve piled on too much debt, a financial plan can help you devise a way to get out from under it. That may involve going back to the basics of budgeting so that you’re living below your means or refinancing your debt so that you can work toward paying off your debt. Whichever way you go, this kind of plan helps you get out of the habits that are piling you under debt.

Retirement planning

This kind of financial plan can help you create the roadmap to a comfortable retirement, showing you how much you need to invest each month and year to achieve your goals. It can also help you pick the right kinds of investments to meet your goals and help you adjust those investments over time as you near retirement, so that you’re sure to have the money you need.

Wealth management

A wealth management plan can help you build wealth and grow the wealth that you already have. This kind of plan can show you tax-advantaged ways to build wealth, help you minimize taxes and generally make use of the best options available to grow your net assets. This kind of plan may involve investment management, tax planning and estate planning as well as any other kind of need that may arise over time.

Tax planning

Taxes can be daunting even when they’re relatively easy, and good tax planning helps minimize your tax liability as well as making sure you have money when you need it to pay the bills. Good tax planning can create ways to minimize the long-term impact of taxes on your finances, too.

Insurance planning

Insurance planning can help you get the right insurance for the right stage of life, helping maximize its benefits while minimizing its costs. A good plan can help insulate you, at least financially, from some of the twists of fate and help you stay on your feet.

Estate planning

Estate planning is the process of optimizing your estate when you pass, ensuring that you’re minimizing taxes and that your loved ones receive what you intended. Good estate planning helps minimize costs and speeds your estate through the legal system and reduces family strife.

Components of a financial plan

A financial plan has a few main components, including the following:

  • Your objective: The plan all starts with your goals and objectives. Do you want to build wealth? Retire wealthy? Minimize taxes? The plan is structured around your needs.
  • The plan: The plan provides the roadmap to get where you want to go, the concrete steps that you need to take to meet your objectives. It could include the amount that you need to invest and the types of investments to make, the kind of insurance to buy and the type of estate documents to create – whatever your goals are.
  • Adjustment and motivation: A good financial plan also gets you to follow through on the plan and re-assesses your progress along the path. So a good financial planner will check in to see how the plan is moving along and how it might need to be recalibrated based on your new goals over time.

How to make a financial plan

Some elements of a financial plan may be relatively easy to create and implement, but others may require the expertise of a savvy planner who understands the best way forward.

For example, you may be able to get your family’s budget in order, but when it comes to minimizing taxes or estate planning, it can help to call in an experienced advisor to be sure you have all the important aspects covered.

1. Set your objectives

Your financial plan begins with you, namely, your goals and objectives. That means you need to carefully consider what your goals are. Do you want to own your own home? And how big? Do you need to pay for your children’s education? How much money do you want to retire with?

Your objectives can be any number of things, but the first step is figuring out what they are, and that requires some time spent carefully considering what you want.

2. Create the plan

Once you’ve figured out what you really want, you can start planning how to get there. You’ll want to consider how to create a plan that gets you to the place you want to be. For example, if you’re looking to build wealth, then you’ll probably want to think about how to invest, but that begins with saving money and living below your means (and maybe paying down debt).

If you’re working on a budget, you’ll need to carefully consider your income and where you spend your money, so that you can begin saving money regularly.

Once you have a workable budget in place, you can think about how you can invest that money. You’ll need to determine how much you can save each month and then how you’ll actually invest it. If you’re looking to become a millionaire, then investing is a great path to get there.

But if you don’t know how to invest or what to invest in, it may make sense to call in an expert financial planner. The planner can help you make smart decisions and avoid wrong turns.

Depending on your financial objectives, you may need to call in an expert at many different stages of your life or as your objectives change. For example, young couples may not worry much about estate planning, but may need to carefully consider insurance and taxes. So you can call in an expert when it’s time to set up the next stage and make smart decisions.

3. Implement the plan

Once you have your plan in place, it’s time to implement it.

In some cases, implementing it may involve buying insurance or creating an investment plan. Such steps may be relatively straightforward and easy to implement. For example, creating an estate plan can be something that’s done once, though it’s useful to review periodically.

In other cases, implementing the plan may require work on a weekly or even daily basis. For example, paying down debt may require constant effort to keep your spending in check. Similarly, building wealth may require adding to your investments with every paycheck.

If you’ve determined that the plan will get you to your goal, you need to keep moving ahead. You’ll need to keep motivating yourself to stick to the plan – something that a great financial advisor can do.

4. Adjust the plan, as needed

It can make sense to review your plan as your circumstances and goals change. If you’ve paid down your debt, for instance, you can move on to a new stage in your plan, building wealth perhaps. Or if you’ve moved from building wealth to maintaining it, then you can develop a budget that ensures that you don’t spend down your principal while still generating income.

As you go through life, your objectives will change. So it’s vital that your financial plan shifts to help you meet your goals.

Financial planning help

The type of financial planning available varies greatly, depending on exactly what you need.

If you’re looking for the nuts and bolts of financial planning, you can work with financial coaches, and sometimes you can even access their services for free or at very low cost.

If you need more comprehensive wealth management advice or investment management advice, you may want to work with a wealth management advisor or a specialized financial advisor.

Some advisors specialize in retirement issues, particularly around retirement accounts and the best time for you to claim Social Security. These advisors may also be able to help you with estate planning and similar issues.

So it’s important to shop around to find advisors who have specialized knowledge for your needs. Not all advisors are the same or have the same expertise – and that’s why it’s also critical that you establish your goals and objectives, because they will shape your search.

Cost of financial planning

Regardless of which kind of advisor you work with, it’s vital that you understand how the advisor is paid. Advisors with a fiduciary duty, such as certified financial planners (CFPs), are tasked to work in your best interest, making decisions for you rather than those that benefit them first.

Advisors who are paid by a big financial institution may be free, but they’re typically just salespeople in disguise. They may help you buy the company’s products and services regardless of whether they best meet your needs. And that could end up costing you big money.

Other advisors may charge an hourly fee or a per-project fee. CFPs charge $250 per hour on average, according to a 2020 study by Kitces Research. But others may charge several thousand dollars to develop a financial plan, depending on exactly what you need.

It’s important to review your plan when your goals change, and that may mean revising the plan with your planner’s help. But it can be money well spent if it helps you make smarter decisions.

Why is financial planning important?

Financial planning can help you optimize your finances, helping you make the most of what you have. It can also help you make smart trade-offs between your short- and long-term financial choices, helping you understand where it’s smart to spend your money and where to save.

With smart planning, you can ensure that your own family’s “balance sheet” is ready for almost anything, whether that’s retirement, paying for college or buying that special thing you’ve always wanted. Planning can help you get there and minimize the trade-offs along the way, making it easier to get what you want today without sacrificing too much tomorrow.

Bottom line

Financial planning can help you make the most of your finances, helping you make smart decisions that can significantly improve your life. By planning ahead – and knowing when to call in a savvy expert – you can achieve your financial goals with less sacrifice and lower cost.

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