What is Financial Planning? A Step-by-Step Guide

What is financial planning?

Getting on a good financial path often requires intentionality. Even if you have a high income or an inheritance, being mindful about your spending, investing, taxes, and other areas of your financial life can go a long way toward optimizing your finances overall. That's where financial planning comes into play.

Definition of financial planning

Financial planning is a comprehensive practice that involves assessing your current financial situation and setting a course of action to reach both short- and long-term financial goals.

The financial planning process and components vary based on your specific needs, but typically it involves looking at financial areas such as an individual's or a family's cash flow, debt management, savings, investments (including for retirement), taxes, and possibly other areas like education planning and estate planning. These areas are examined to help chart a path toward reaching your goals, and the process can also involve setting new goals based on factors like your values, risk tolerance, and time horizon.

You can craft a financial plan yourself or enlist professional assistance. Search for the best online financial advisors or planners, or look for in-person advisors in your area.

"Financial advisors can help you create a financial plan by understanding your goals, values and risk tolerance, and then building a customized path that they can guide you along to enrich your life to its fullest potential," says Jordan Gilberti, CFP and senior lead planner at Facet.