Seven Building Blocks of Financial Planning (2024)

By George M. Hiller, JD, LLM, MBA, CFP®

1. Set Goals

There are seven basic building blocks of financial planning. The first building block is to set goals. What are your long-term financial goals? At what age would you like to be financially independent? How much monthly income will that take in today’s dollars? Do you want to reduce your income taxes or estate taxes? Do you want to become debt free? Do you want to be able to give more to charitable organizations? Do you want to make sure that your spouse and children are taken care of financially in the event of your premature death? Do you want to help with the education of your children or grandchildren? Different people will emphasize different goals. Take some time and write down your most important financial goals. Establishing goals or objectives is the first building block of financial planning.

2. Take a Personal Financial Inventory

The second building block is to take a personal financial inventory. This means looking at your financial situation and determining the state of your financial condition? Ask yourself several questions. What are your assets and liabilities? What is your income and net worth? How much does it cost for you to live? How much are you paying in taxes? What investments do you own? How much insurance do you have and what does it cost? How much are you setting aside for savings and investment? These questions can help you determine what you have and what areas you need to address.

3. Assess Your Financial Condition

The third building block is to make an assessment of your financial condition by comparing your current financial condition in light of your long-term financial goals. Are you on track financially to achieve your goals? Are you making the right choices now to be where you want to be five, ten, or fifteen or more years from now? Do you have too much debt and not enough savings? Are you adequately insured? Do you have a will? Do you have a plan for retirement? Do you have a plan for your children’s education? Do you have an appropriate mix of investments? Are you paying too much in income taxes? Do you have an estate tax exposure? This assessment will point out strengths and weaknesses in your financial condition and direct your focus to the areas that need attention.

4. Develop Your Personal Financial Plan

The fourth building block is to develop your personal financial plan. The primary purpose of the financial plan is to help you accomplish your long-term financial goals. The financial plan should also enhance your financial position over time by helping you to make informed decisions regarding your finances. Your financial plan should have specific steps that you can take to achieve your financial goals. It should answer the following questions. How much should you be saving to meet retirement objectives or education funding objectives? What is an appropriate asset allocation for your investment plan? What specific strategies should you implement to reduce income taxes or estate taxes? How much life insurance should you have and what type of life insurance should you purchase? What kind of will should you have and do you need a trust? Because of the complexity of investments, insurance, tax law, estate planning and other specialized areas of finance, you can benefit greatly from expert advice from a qualified financial advisor. Seek out a reputable financial advisor with good credentials and experience. A good financial advisor can be vital to your achievement of your long-term financial goals.

5. Implement Your Financial Plan

The fifth building block is to implement your financial plan. Begin making decisions to put the financial plan into effect. Implementation requires both commitment and action. Take the steps needed to achieve your financial goals. Believe in the financial planning process, that it will lead to the achievement of your financial goals. The decisions you make today will help shape where you will be financially in five, ten or fifteen years or more.

6. Periodically Review Your Financial Plan

The sixth building block is to engage in periodic review of your financial plan. You should review your plan on an annual basis. Ask yourself if you have had significant changes in your life that affect your finances. Are your investments still suitably positioned? Have there been any changes in the tax laws that affect your financial plan? Or, have there been any other external events or areas affecting your finances. This process of periodic review can help make sure that you stay on track with your financial plan.

7. Ask God To Help You To Be A Good Steward

The seventh building block is to ask God to help you to be a good steward of the finances that He has provided for you. God wants you to succeed. He has a good plan for you. Ask God to show you His plan for you. Spend time on the seven building blocks of financial planning. The seventh building block is the most important building block. “So if you have not been trustworthy in handling worldly wealth, who will trust you with true riches?” Luke 16:11