Personal Finance Basics and the Time Value of Money (TVM) Practice Test 2026 - Free Practice Questions and Study Guide

In the financial planning process, the first step involves determining your current financial situation. This foundational step is crucial as it provides a clear snapshot of where you stand financially before making any plans or setting goals. By assessing your income, expenses, debts, assets, and overall net worth, you gather essential information that guides all subsequent decisions in the planning process.

Understanding your current financial situation allows you to identify strengths and weaknesses, which informs your goal setting and the strategies you develop later on. Establishing this baseline is vital because without a thorough understanding of your current financial circumstances, it would be challenging to develop realistic and achievable financial goals, explore alternatives, or review and revise plans effectively. Thus, this step lays the groundwork for a successful financial planning journey.