What Is Financial Planning? A Helpful Guide - MagnifyMoney

What Is Financial Planning? A Helpful Guide

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Financial planning is a process that lays out how to use the resources you currently have available, like income and savings, to build the life you envision. And no matter your goals — sending kids to college, buying a home or building a legacy — a comprehensive financial plan offers a step-by-step process to help you achieve those goals while weathering life’s storms.

But why take the time to craft a financial plan? Because a good financial plan is like a good grocery list. While making one takes a bit more time, having one ensures you get everything you need — and nothing you don’t.

The big question: What is financial planning?

Financial planning is a process that takes stock of every aspect of your life, finances and goals and uses that information to build a strategy for your future. To build a plan, you or your financial planner will typically use a three-step process:

  1. Assessing your finances. Your debt, savings, income and cash flow tell a story about how much money you have to put toward your goals.
  2. Getting clear on goals. Each of your goals requires resources, from career aspirations and travel desires to buying a home and building a family.
  3. Crafting and implementing a plan. With a clear picture of your finances and goals, you can create a plan that uses the money you have to build the life you want via various strategies and financial products.

With a financial plan in hand, you can take active steps toward your short- and long-term goals. You might start by building a budget or opening an IRA. You may even set a strategy to build up your emergency savings. But what’s important to remember is that your plan should grow with you.

Financial planning should be an ongoing process that evaluates how your priorities and money situation may have changed and uses that information to make adjustments so you stay on track.

Types of financial planning

When creating a financial plan, credentialed planners use a broad range of planning strategies. Some of the most common types of financial planning you can expect to see in your plan include:

Retirement planning. Since you likely don’t want to work forever, your financial plan evaluates your retirement income needs, how much you need to save to meet them and the best investing plan and retirement accounts to help reach your goals.

Educational planning. Whether you have kids, nieces and nephews or grandchildren, a financial plan can create a savings strategy to fund their education — from K-12 to college and beyond.

Philanthropic planning. Your financial plan can help you fund charitable goals and work with your estate and tax planning strategies to reduce the tax burden on you and your heirs.

Insurance planning. Life, disability, health and liability insurance all offer valuable financial protections against life’s unexpected twists and turns.

Estate planning. Critical documents like wills, powers of attorney, trusts and advance health directives can help you provide for your family physically and financially.

Tax planning. Every financial plan worth its salt should help you minimize and pay the taxes you owe to maximize the money available for your goals.

All the strategies above work together in your financial plan, too. For example, if you don’t have an education savings strategy, you might be tempted to tap your retirement savings to pay for college. On the other hand, if you don’t consider tax planning during the estate planning process, your heirs might get stuck paying easily avoidable taxes.

How to make a financial plan

To create your financial plan, you have four options: build your own, hire a professional, access advice through a robo-advisor or use an online financial planning service.

Build your own

If you’re an enthusiastic do-it-yourselfer, building your own plan is certainly an option. While there’s no one right way to go about it, we can suggest the following steps and questions:

  1. Set your goals. What are your priorities? What opportunities do you and your family want? What does your life look like in the future?
  2. Clarify your finances. How much do you earn? Do you expect your earnings to increase? How much debt do you have? How much are your monthly expenses?
  3. Assess your emergency savings. Do you have an emergency fund? Are you comfortable with your current savings? How much would you need in this account to feel comfortable?
  4. Check your insurance coverage. Do you have life insurance? Does your current life insurance coverage replace your income and for how long? Do you need disability or long-term care insurance?
  5. Assess your short-term goals. How much money do you need for expenses and goals in the next 12 months? Is your savings account earning the best possible rate?
  6. Assess your long-term investments. How much money do you need to retire? Are you contributing enough to get the full employer match from your 401(k)? Are you maxing out your annual IRA contribution?
  7. Assess your risk. Do your investments align with your risk tolerance? Are you taking on too much or too little risk to reach your goals?
  8. Make an estate plan. Do you have a basic will? Is your will or trust up to date? Have you created a power of attorney or advance health care directives, and do your loved ones have copies?
  9. Reevaluate your plan. Has anything changed — your income, your family or other aspects of your finances? Should any part of your plan be adjusted? Can you contribute more toward your goals?

Work with a professional

If you’d prefer some expert guidance, you can work with a credentialed professional to build your unique plan.

While many asset and wealth management professionals might offer financial planning services, we recommend looking for professionals who carry credentials or memberships like:

If you’re ready to work with a fiduciary financial advisor to craft your financial plan, MagnifyMoney can help match you with one at no cost.

Use a professional through a robo-advisor

Many of the best robo-advisors offer investors access to CFP professionals and other advisors as a value-added service. For example, SoFi Automated Investing offers customers unlimited access to CFPs for free, while Betterment charges an extra fee for planning services.

Use an online financial planning service

If you’re a digital-first investor who prefers web-based convenience, you could use an online service. While these services are relatively new, they can help you access credentialed professionals to help build a well-rounded money roadmap.


Pylon gives you access to certified financial planners who can turn assets and goals into actionable financial plans. While it’s not cheap (currently $49 per month or $470 annually with a 14-day free trial), Pylon claims its fees are far lower than what a traditional advisor may charge for similar services.


Savology offers two separate plans — one geared toward the DIY-savvy and the other better suited for those seeking professional help. The free option uses a guided questionnaire to generate your financial plan and offers a dashboard to track your progress and update your goals.

The Plus plan (currently $6 per month) gives you all the features of the free plan but also lets you connect your financial accounts and access coaches via online chat. Savology’s coaches hold CFP, accredited financial counselor (AFC) or other certifications.

How much does financial planning cost?

Costs can vary based on where you choose to access advice. Of course, the DIY option will always be the least expensive. However, if you’re looking for some extra help, costs will trend higher.

Financial planning costs by provider type

ProviderEstimated costs
Traditional financial advisorVaries based on plan complexity, but either a flat rate or hourly charges ($150 to $300 per hour)
Online planning service$0 to $470 annually
Robo-advisor$0 to $399, plus your annual management fee

What’s next?

However you decide to create one, your financial plan is a powerful way to align your decisions with your goals. But your go-get-’em drive to level up your finances doesn’t have to stop here. We’ve put together some next steps to keep the momentum going.

The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.