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What is Comprehensive Financial Planning?


Having a firm handle on your finances is about far more than just having a budget. A comprehensive financial plan can help reduce financial stress, create peace of mind, and help you reach your financial goals.

A recent industry survey revealed that individuals with a financial plan in place are far more likely to feel financially stable. They’re also more likely to have many financial foundations in place, such as an emergency fund and no credit card debt.

Wondering how to get started? Keep reading to learn what comprehensive financial planning is, the components of a comprehensive financial plan, and how to create your financial plan today.

What is Comprehensive Financial Planning?

Comprehensive financial planning is the process of creating a detailed plan for your finances to help you take control of your situation and reach your short and long-term financial goals. Financial planning can be done either on your own or with a professional financial planner, but it’s something that everyone should do, regardless of how much money they have.

While you can make a financial plan for any area of your life, comprehensive financial planning is more of a holistic approach in which you address each area of your financial life and how they interact with one another. Having this type of big-picture plan for your finances can help reduce stress and anxiety around money while helping you to reach your goals.

Components of a Comprehensive Financial Plan

As we mentioned, it’s possible to create a financial plan for any area of your finances. But a comprehensive financial plan should touch on each part of your finances, and therefore requires quite a few components.

Balance Sheet and Cash Flow Statement

One of the most foundational steps of financial planning is taking inventory of your financial statement. That’s where the balance sheet and cash flow statement come in.

A balance sheet, also known as a net worth statement, is a summary of your assets and liabilities. On one side, it lists each of your assets — in other words, anything you own, both cash and physical items, that has financial value. On the other side of the balance sheet is everything you owe, meaning your debts or liabilities.

Finally, your balance sheet will include your net worth, which is the difference between the assets and liabilities. Your net worth can be a useful tool in tracking your progress in saving, investing, and paying off debt. Your balance sheet can also be useful in making sure you have appropriate savings for emergencies and other expenses.

A cash flow statement is a summary of where your money goes. It shows how much money you earn each year, as well as where that money goes. Your cash flow statement can help you ensure you’re living within your means and leaving enough room in your budget for your financial goals.

Get Started: Calculate Your Net Worth with Personal Capital’s Free Tracker

Debt Management

Another important component of a comprehensive financial plan is a debt management plan. Data from 2020 shows the average American has more than $92,000 of debt made up of credit cards, student loans, mortgages, auto loans, and more.

Your financial plan can include a step-by-step plan of how you’ll pay off your debt. You might choose to use the debt snowball, where you tackle your debts with the lowest balances first. You might instead choose the debt avalanche, where you prioritize your debts by interest rate, starting with the highest. In some cases, you may decide to pay the minimums on your debt and invest excess income if you believe your investments provide a higher rate of return than the interest savings.

Insurance Planning

Insurance isn’t exactly an exciting topic to talk about, but it’s one of the most important components of your comprehensive financial plan. After all, it’s the part of your plan that protects the money you work so hard to earn and manage.

Depending on your situation, there are a variety of types of insurance that you might have. Here are a few policies you may need:

Health insurance to cover medical expenses for you and your family. Many people have health insurance through an employer, but others may purchase it privately or through the federal healthcare exchange.
Auto insurance to protect you in case your car is damaged and to cover your liabilities if you cause an accident.
Homeowners’ or renters’ insurance to protect your home and the personal belongings within it. It also covers your liabilities if someone is injured in your home.
Disability insurance to replace your income in case you become disabled and aren’t able to work.
Life insurance to ensure your family can continue to meet their needs in case you pass away. Depending on your situation, you may choose either a term or permanent policy.

Retirement Planning

Retirement is likely the largest financial goal that most of us will save for in our lifetimes, and so it deserves an important place in your comprehensive financial plan.

For many people, retirement planning starts with a 401(k) plan offered through their workplace. It may also include either a traditional or Roth individual retirement account (IRA) or a self-employed retirement plan such as a SIMPLE IRA, SEP IRA, or Solo 401(k).

In your comprehensive financial plan, you can lay out your investment strategy for your retirement savings. Many people use a target-date fund to save for retirement, but that’s far from the only option available.

If you aren’t sure how much you should be saving for retirement, you can use the Personal Capital Retirement Planner to get started.

Investment Planning

In addition to your retirement plan, your comprehensive financial plan will also include a strategy for your other investments. Many people choose to invest in a taxable brokerage account, either to help them save for other financial goals or to supplement their retirement accounts.

The investment planning component of your financial plan will include information about your financial goals, your risk tolerance, your asset allocation, and more.

College Planning

If you have children, then college planning might be an important part of your comprehensive financial planning process. After all, college is becoming increasingly more expensive. Over the past 20 years, the cost of college has grown by an average of 6.8% each year, and today the cost of attending a four-year in-state university is more than $25,000 per year.

When it comes to saving for college, there are several tools available to you. A 529 college savings plan is one of the most popular tools to save for college, but people also turn to UGMA and UTMA accounts, taxable brokerage accounts, or even savings accounts.

While it’s not worth sacrificing your own financial health to save for your child’s future, it can provide some peace of mind knowing your child won’t have to rely entirely on burdensome student loans that could take decades to pay off.

Tax Management

Taxes are a fact of life that we all have to deal with, whether we like it or not. Each year, most of us pay a variety of different types of taxes, including income taxes, sales taxes, property taxes, and more.

A comprehensive financial plan includes a tax management strategy to help you reduce your tax burden. It might include strategies you’ll use to save money on taxes, such as taking advantage of tax-deferred retirement plans.

An effective tax management strategy ensures you have money left in your budget to put toward other financial goals.

Estate Planning

No one wants to think about their death, especially when it should be decades away. Nonetheless, estate planning is an important part of creating a comprehensive financial plan. As you approach your estate plan, consider two different questions:

What do you want to happen to your assets when you die?
How will you ensure your loved ones are taken care of after your death?

Many people assume they don’t need an estate plan if they don’t have many assets, but having a will and other end-of-life documents in place can help your loved ones avoid probate court and receive the assets you wish to leave for them. Don’t just assume everything will end up exactly how you would want it.

Financial Goals

We’ve talked about some major financial goals already, such as planning for retirement or college. But any other financial goals you have should also have a place in your comprehensive financial plan. For example, if you’re saving for your dream home, be sure to include it in your plan. Be as specific as possible. You can lay out how much you need to save, how you’ll save it, the costs of homeownership once you buy the home, and more. It will be important to lay out a prioritized list of all of your goals.

How to Create a Comprehensive Financial Plan

Are you creating a comprehensive financial plan for yourself? Here’s how to get started in five steps.

1. Take Inventory

The most important first step to creating your comprehensive financial plan is figuring out where you are today. This step is where you’ll create your balance sheet and cash flow statement, the foundation upon which the rest of your financial plan is built.

Start by making a list of all your assets and liabilities. For assets, including everything in your bank accounts, investment accounts, etc. Also include physical assets like your home. Then make a list of all of your debt. To calculate your net worth, subtract your liabilities from your assets to find your net worth.

Whatever your net worth, don’t take it too personally. Due to student loans, many people start their adult lives with a negative net worth and eventually achieve a positive one. Your net worth is simply a tool to measure your progress moving forward.

Another part of taking inventory is figuring out where your money is going. The simplest way to do this is to go through your bank and credit card statements for the past few months and write down everywhere your money went. Make a list of each spending category, and figure out your average spending during the timeline you’re looking at.

Figuring out your current spending is an important step because it can open your eyes to what might be holding you back and what changes you can make to achieve your financial goals.

2. Set Financial Goals

Having real financial goals in place is critical because it helps you to craft the rest of your financial plan. Sit down with a piece of paper and write down all of your financial goals, big and small. It might span everything from going on a vacation to retiring with $1 million in the bank.

As you’re writing down your financial goals, remember that you’ll have to prioritize, and some goals may require compromising to ensure others are reached. For example, you might have a dream to own a vacation home. Put it on the list, but know that you may have to eventually compromise to reach other goals, such as retiring on time.

3. Create a Strategy for Each Part of Your Finances

Once you’ve done the foundational steps of taking inventory of your current situation and setting your financial goals, it’s time to really create your financial plan. In this step, go through each of the components we discussed above and make sure you have a strategy in place. Some steps, such as college savings, may not be relevant to you. But most of the components on the list should have a place in everyone’s financial plan.

4. Be Intentional About Where Your Money is Going

It’s not enough to simply know where your money is going. Instead, you should decide where you want your money to go and make changes in your spending to stick to your new budget.

Creating a financial plan is an important step, but it doesn’t mean anything if you don’t follow through. Being intentional about where your money is going is how you can take your financial plan from just a plan to a reality.

Once you’ve outlined strategies for each component of your financial plan, you can work them into your spending plan. Do you need to put money toward building an emergency fund? How much will you put toward saving for retirement or college? How much do you need to spend on insurance each month?

Once you’ve answered these important questions, you craft a budget that accommodates each area of your financial plan, as well as sets spending goals for your monthly spending.

5. Enlist Help

If crafting your own financial plan sounds overwhelming, you aren’t alone. The good news is that you don’t have to tackle comprehensive financial planning yourself. You might decide to hire a financial professional to help.

A financial planner is a professional whose job is to help clients create their financial plans. Some planners might advise clients on a certain part of their financial plan, such as managing their investments. Others, however, specialize in helping clients to build their comprehensive plans.

Not sure which professional to trust? A Certified Financial Planner is a licensed professional trained to help clients craft their financial plans. The CFP designation is considered the gold standard in the field. Another rule of thumb that can help you find the right planner is to seek out someone who is a fiduciary, meaning they have a legal and ethical responsibility to act in your best interests.

Next Steps

A comprehensive financial plan is one of the most important tools in your financial toolbox. It lays out a strategy for each part of your financial life in a holistic way. It’s a key step in setting and reaching your financial goals. After the plan is created, it’s important to think about implementation of the plan, monitoring the plan and making adjustments, as needed, over time.

If you’re just getting started with your financial plan or want some tools to help simplify the process, check out Personal Capital’s financial dashboard. It includes valuable tools such as a net worth calculator, cash flow planner, retirement planner, and more. It’s free to use.

You can also get in touch with an advisor to learn more about our investment services to help you manage your investments and reach your financial goals, both big and small.

Get Started with Personal Capital

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