What is typically the first step in personal financial planning?

The first step in personal financial planning is identifying financial goals. This step is crucial because it sets the foundation for all subsequent financial decisions and actions. By determining specific, measurable, achievable, relevant, and time-bound goals, individuals create a clear roadmap that guides their financial planning process. These goals can vary greatly from person to person and might include saving for retirement, purchasing a home, funding education, or planning for travel.

Once financial goals are established, it becomes easier to prioritize expenses and design a budget that aligns with these objectives. This initial step not only clarifies what one wants to achieve but also fosters motivation and accountability throughout the personal finance journey. Without well-defined goals, the planning process lacks direction, which makes it more challenging to evaluate options like budgeting or investing. This foundational understanding ensures that financial decisions are aligned with personal aspirations.