What is The First Step in Financial Planning?

Posted by David Funes on Oct 8, 2022


The question of what the first step in financial planning is doesn’t have a simple solution. In fact, Forbes’ Finance Council recently asked a selection of financial experts that very question and came up with a diverse group of responses. Their suggestions included these:

  • Start with your end goal
  • Keep meticulous track of where the money goes
  • Understand your net income
  • Diversify your banking habits
  • Start investing immediately
  • Know your credit score

Pay yourself first.

One of the classic pieces of financial advice made this Forbes list: pay yourself first. While this may not be the first necessary step toward financial planning (there is a solid case to be made for understanding your starting point and also one in favor of identifying your finish line), many financial experts emphasize the need for reducing expenses below income. By doing this, you have the means for saving and investing, both of which are necessary for reaching those financial achievements.

Start with basics.

One essential early step is identifying your goals. You likely have short and long-term pursuits, and your list probably depends on where you are starting from, so elaborating on your objectives may include an explanation of your current status.

Suppose you are a 30-year-old, recently married person with a joint income of $200,000, $50,000 in student loans, a car loan with a balance of $25,000, and no mortgage. This snapshot places your current position in focus and allows you to analyze what you can currently dedicate toward savings and investments.

More than one adviser suggests simply cutting back on everyday expenses to increase the amount of money you can divert to your goals. For example, we all know how much it costs to buy coffee at an upscale barista bar compared to making our beverage at home. However, most of us do not consider the compounded effect of that daily expense over the course of a month or year, further increased by investment.

Be flexible.

As you continue your journey, your financial circumstances will change, sometimes for better and sometimes for worse. As a result, you will need to adjust your budget in response to external changes, and you may need to adjust your plan in response to aspirational evolution. For example, returning to the young couple with good income but limited investments, their immediate goals likely included buying a first home, saving for retirement and other milestones, and establishing an investment portfolio.

In a few years, some things may have changed. For example, the couple may have children they want to assist with future educational plans. The primary residence might not be big enough, and it becomes their first rental property while they buy a bigger home to occupy. Perhaps one has received an inheritance that they want to invest. All these life changes influence their goals and their ability to invest in progress toward them.

Ask for help.

Most people can benefit from professional guidance regarding their finances. There are numerous types of help—financial advisors, financial planners, investment advisors, lawyers, CPAs, and more. Consider engaging one at key milestone periods in your life if you don’t have one you consult regularly. Some of those times include:

  • Marriage
  • Divorce
  • Becoming a parent
  • Inheriting money
  • Starting or selling a business

Another signal that you need professional direction is if you don't feel comfortable making investment decisions or if you and your partner disagree on strategy. Again, a neutral third party (especially one with a fiduciary responsibility) can help iron out any differences and forge a compatible path forward.


This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.

Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.

Examples are hypothetical and for illustrative purposes only. Withdrawal strategies should take into account the investment objectives, financial situation and particular needs of the individual.

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