No one cares about your financial well-being more than you, so it's important to have a financial plan for yourself. Having a solid financial plan will allow you to save money, afford the things you really want, and achieve long-term goals like saving for college and retirement.
This probably won’t come as a surprise, but everyone’s financial plan looks different. So if you’re wondering how to create a financial plan, or why you should do so, you’re in the right place.
We all want to be financially independent and build wealth. Deciding to embark on the journey toward financial independence is a big deal! It marks a fresh beginning with your money and it means that you’re setting out to accomplish something that can change your life for the better.
In this post, I’ll take you through everything you need to know in order to plan for your financial future. Keep reading, then get ready to take some action to kick-start your own financial plan.
- Create a list of things to plan for
- Determine the type of financial plan you need
- How to create a financial plan
- Tips on how to frequently review your financial plan
Create a list of things to plan for
Let’s start by creating a list of things you’ll need to have or build on your journey to financial security. These items below are essential to your financial plan (Click the links below to delve deeper into each!):
- A monthly budget to help you keep your expenses below your income
- A debt pay-off and spending plan (using your budget)
- An understanding of all your bills and their due dates
- A fully-funded emergency account
- Retirement savings
- A diversified portfolio of investments
- Multiple streams of income
- Savings for the other things you want (e.g. your short, mid-term and long-term goals)
- The right type of insurance coverage (Life, health, disability, home, etc.)
Determine the type of financial plan you need
Don’t think that it's too early or too late to have a financial plan. Quite the contrary—now is the PERFECT time to start!
1. A plan for yourself
If you’re single, it's important to establish a financial plan that not only helps you meet your immediate goals, but that ensures your future self will be taken care of. This means doing all the things mentioned above without making any assumptions that things will somehow work themselves out. A big mistake? Assuming you'll meet someone who will take care of you and deal with the finances in your relationship.
If your relationship status changes or you get married, you'll be well equipped to plan your finances together if you already have things in place for yourself.
2. A plan for your marriage
If you are married or have a significant other, then you need to participate in your finances as a team. Discuss your budget and money goals and make financial decisions together. Understand where your money is going and how much money you have in savings and in investments.
- Should you have joint accounts or separate accounts?
Having joint accounts is great, but I also believe in having your own personal savings accounts. As women, it’s important for us to build our own sense of security and have "our own" that we bring to the table. But don’t feel like you need to keep your personal accounts secret. Remember, marriage and committed relationships thrive on openness and honesty.
Regardless of whether you team up with your partner or go it alone, the path to financial independence is not always a smooth, perfectly paved one. But don’t despair; it’s time to roll our sleeves up and get our hands dirty. That’s right—it’s time to learn how to create a solid financial plan.
How to create a financial plan
Below, you’ll find ten steps to create a solid financial plan.
1. Write down your financial goals
Having financial goals is the foundation for your financial success. After all, you have to know what you want to accomplish in order to actually accomplish it. However, when it comes to setting goals, you want to make sure your goals are well defined and prioritized accordingly. It's great to have big, lofty goals! But be sure to break them down into smaller chunks. That way, you’re not overwhelmed trying to accomplish them and you can easily measure your progress.
2. Start an emergency fund
It's also really important that one of your goals includes a plan to deal with emergencies. You want to make sure you are prepared to weather a storm. Otherwise, you'll just end up in debt again.
3. Pay off debt
Sadly, you can't really kick-start your financial future if you're carrying a ton of debt. Between sky-high interest rates, large minimum monthly payments and the damage lots of debt can do to your credit score, you're better off paying your debts first. Create a debt pay-off strategy and be patient but consistent when working toward becoming debt-free.
4. Create a plan to invest
If you are serious about building wealth, then you're going to need to put your money to work for you. This is where investing comes in. However, before you put any of your hard-earned money into investments, it's important to have well-defined objectives. Think about what the investment is for when you'll need your money and what your risk tolerance is (Learn more here).
Investing is a long-term activity, so you have to commit to it if you really want to see your money grow. Worried that you'll need your money in the short term? Well, that's what your savings accounts are for; to put aside your emergency savings and money for your short-term goals (i.e. money you'll need in 5 years or less).
You also want to make sure you have a basic understanding (at the minimum) of any investment you put your money into (e.g. the stock market, real estate or small business). Your plans to invest should be included as a part of your monthly budget where you allocate a certain percentage of your income toward your investment goals.
5. Get the right insurance
After working so hard to earn your money, the last thing you want is an unplanned occurrence to wipe you out. Insurance is essentially your back-up plan that will protect your assets in the event a life circumstance happens that requires a large amount of money to resolve.
Your insurance coverage should include health, auto, disability, life, home or rental, and business. Basically, you want to protect anything of major importance that has a high value to ensure that you (and your loved ones) are protected financially.
Having the right insurance can turn what could otherwise be a major disaster into a mere inconvenience.
6. Create a plan for retirement
In order to have the lifestyle you dream of in retirement, you need to plan adequately for it. You'll need to determine how much you are going to need to retire, of course taking inflation into consideration (read more here), and how you plan to save and invest in advance for that period of your life.
While retirement might seem like a lifetime away, it's never too early to start!
7. Plan for taxes
Yup, taxes! Taxes are annoying, but they're certainly not going away anytime soon. So make sure your long-term income projections include taxes. Not planning for taxes can impact your cash flow in a major way.
In addition, you definitely want to look into tax savings investment options and stay up to speed on any relevant tax deductions you can apply to help you save money on tax payments. You can plan to sit with a tax accountant or financial planner to help ensure your plan for taxes is adequate.
8. Create an estate plan
Estate planning is not something a lot of people like to think about, but it's essential! It allows you to determine exactly what happens to your assets after you are gone. It involves listing out all your assets, creating a will and making it accessible to the people who need to have access to it. A financial planner or estate lawyer can help you set things up correctly.
9. Review your plan frequently
Once you have your financial plan outlined and churning along, it's important to review your plan frequently and make the necessary adjustments if your goals or the circumstances around your life change.
For instance, maybe your insurance needs change, your risk tolerance changes, or you get married or have kids. At a minimum, you want to check in on your overall financial plan at least every six months.
When you check infrequently, it's easier for you to deal with unplanned life occurrences, bounce back from setbacks and accomplish your financial goals.
Think about what you do to maintain your personal health - You brush your teeth and shower regularly to keep yourself clean and avoid unnecessary illnesses because we all know that falling sick can lead to other health complications and you definitely don't want that. And also because you do it so often, it's now part of your everyday health maintenance habit - well, the same applies to your finances!
10. Stay the course, avoid overspending and learn from your mistakes
Your journey to financial independence won’t always be easy. There will be some tough days, weeks and even months. Pursuing a goal of financial independence that's very much tied to delayed gratification is not always fun, but it’s completely doable. Have a solid plan for your finances, be disciplined and avoid overspending. You’ll find out how great you’ll feel when you really make a concerted effort to stick to your budget.
As you work on your finances, you may still make mistakes with your money, and that's okay. Sometimes you might be unable to resist the urge to buy something that isn't in your immediate budget. And sometimes you will feel like ripping your entire financial plan to bits because it just doesn't seem like fun.
However, as long as you keep your reasons WHY you want to be financially free in focus and make an effort to rebound quickly from your mistakes, you'll do just fine. It's all about assessing the mistakes you made, understanding why you made them and making a plan to avoid making them again. Then, you’ll need to take those lessons and apply them to your future success.
Tips on how to frequently review your financial plan
Here are some tips to help you check up on your financial plans.
1. Establish a routine
Allocate some time each week or at the minimum once a month, unfailingly, to go over your finances. Make it a coffee date with yourself or put on some nice music and grab a warm cup of tea at home and spend some time checking in on things. It's a good idea to set a reminder on your calendar so you don't forget this check-in.
2. Set and review your financial goals
If you haven't already, it's important that you layout your short and long-term financial goals so you know exactly what you are working towards with your money. As time progresses, you want to make sure you review and reassess your goals to make sure they are still things you want to accomplish and that you are on track to meet them.
3. Reconcile your bank accounts and bill payments
Check your bank account debits against any bills payments you previously scheduled or sent out. Make sure any pending bills/debt repayments have been paid or scheduled.
Compare your receipts against your credit card transactions and confirm the balance. Review your budget and compare your actual spending to what you budgeted for. Once a month establish your budget for the upcoming month.
4. Review your savings and investments
If you have automated transactions set up to make transfers to your savings or investment accounts be sure to check in on them. This would also include any automatic deposits you have set up to go into your retirement accounts etc.
If you don't have automation set up, make or schedule your manual transfers to your savings and investment accounts and be sure to check and make sure the transactions went in successfully.
Also, plan to review your overall investment portfolio to rebalance and diversify as needed and be sure to review your fees too!
5. Review your insurance policies
You also want to make sure you have the right type of insurance for your life. This includes health, auto, life, disability, home, personal property, business, etc. Set a reminder for twice a year where you sit down and evaluate the costs of your various policies and shop around to see what else is out there.
Reconciling your accounts and planning your finances out, ensures you are aware of everything happening with your money and that you are on the right path to accomplish your goals.
6. Check your net-worth
Your net worth can almost be described as the thermometer used to measure your financial health and you want to keep track of it. Your main priority should be to pay off as much debt as possible, starting with your high-interest debt, grow your assets and over time, your net worth will start to grow.
It's also important to track your net worth over time to ensure you are in line with your long-term goals and financial objectives that you've set out to accomplish.
Many people start out with a negative net worth as they start out working on improving their finances but given time and the continuing of practice good financial habits, this will change.
Questions to ask when you review your financial plan
Some questions to help you along with the process could include:
- What steps did I take this past month that got me closer to my goals?
- What things happened that have put me further away from my goals?
- Was my spending in line with my core values?
- What money mistakes have I made in the last month?
- Why did I make them?
- Are my financial goals still realistic?
- What big expenses are coming up soon?
- Is my emergency fund fully funded with 6 to 9 months of expenses based on the current basics needs I have today?
- Am I saving enough to retire comfortably based on my ideal retirement amount?
Don’t know your amount?
- Am I meeting my other short-term savings and investment goals
- Am I on track with my savings for my children?
- What steps can I take to make sure I have a better month next month?
Tip: Keep a journal where you answer these questions and then review your past entries every few months, it’s a great way to stay motivated especially as you see the progress you are making over time, and if you stay committed to improving your finances, you WILL see progress.
Remember, this is your journey and not anyone else's so having a plan to succeed with your finances is super important. Planning ahead for the life you desire is 100% worth it.