Steps of a Financial Plan

Keri and Haylie

Financial Planning

It is a process of setting goals, developing a plan to achieve them, and putting the plan into action.

What Makes Up a Financial Plan?

This project will introduce you to the seven components in which help you achieve financial security, because the first step in building a financial plan is understanding the different parts of it.

The Components

Component One

The first component is a complex one, which includes a plan for budgeting and taxes.


The first step in planning this, is establishing net worth.


  • Net worth = Assets - Liabilities


The second step is establishing income.


  • Income is money received, especially on a regular basis.


The third step is identifying expenses.


  • Estimate how much money you are spending each month.


The fourth step is considering the impact of taxes


  • The more money you make, the higher the share of your income you will pay in income taxes.

Component Two

The second component in a financial plan includes a plan for managing your liquidity.


Liquid assets can easily be turned into cash.


A good financial plan will help manage your liquidity so that you don't get caput off guard by an unexpected expense.


Credit can increase liquidity, but it could also be very costly.

Component Three

The third component includes a plan for your financing.


Some great purchases could result in borrowing money for long periods of time.


Long-term financing is usually available at a lower cost to a borrower with credit cards.


Payment terms include specific information about the interest rate the lender will charge you, and the time period for paying back the money borrowed.

Component Four

The fourth component includes a plan for managing your risk.


As you accumulate assets, you need a plan to protect them.


Insurance planning determines the types and amounts of insurance you need.

Component Five

The fifth component of the plan includes a plan of your investing.


Invest with the expectation of earning more money.


  • Riskier investments can produce greater returns, and may experience great losses.

Component Six

The sixth component includes a plan for your retirement.


People who started planning for retirement early, usually retire at an early age.


By determining how much to save for retirement every year and how to invest that money, you could start planning.

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Component Seven

The last component includes a plan for communicating and keeping records.


This planning, starts by identifying goals and writing them down.


They begin identifying steps to take to achieve the goals written down.

Financial Planning

Altogether, your plan is like a blueprint for your financial future.


In order to establish a good financial plan, you must plan the seven key components.