12 Steps To Creating A Solid Financial Plan For Yourself

No one cares more about your financial well-being than you, so having a personal financial plan is important. Knowing how to make a financial plan will allow you to save money, afford the things you want, and achieve long-term goals like saving for college and retirement.

How to create a financial plan

This probably won’t come as a surprise, but everyone’s money plan looks different. If you’re wondering what makes a solid financial plan or even “what is a financial plan?” you’re in the right place.

In my opinion, money planning is critical, especially financial planning for women.

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 our money, and it means that we’re setting out to accomplish something that can change our lives for the better.

In this article, I’ll explain everything you need to know to plan for your future (I follow these same steps for my own finances).

So keep reading, and get ready to take some action to kick-start your own solid money plan.

What is a financial plan?

It’s simply a structured approach to reach your financial goals. It details your current money situation and financial system, including investing, saving, retirement, and estate planning.

In addition to these key elements, you may also choose to include milestones that you’ll reach along your financial journey to help with your long-term success.

So, what is a financial plan, in simple terms? It’s simply a long-term, organized approach to money management.

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 money plan (Click the links below to delve deeper into each!):

Now that you are aware of what to plan, let’s get into exactly how to create your financial plan.

How to make a financial plan

Below, you’ll find twelve steps for how to make a financial plan. These steps will cover all the basics to help you get started. Keep in mind that your plan is unique to you, so feel free to customize it as necessary.

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 do to accomplish it.

However, when setting goals, you want to ensure that they 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’ll not be overwhelmed by the task and can easily measure your progress.

Your financial goals include anything from getting a new job with higher earnings to paying off student loans, car loans, and credit card debt. What’s important is that you know your priorities.

Evaluate your money situation

As you create your goals, knowing where you’re at with money is important. You should take time to understand your relationship with money and what you’d like to do differently.

You should also go over the numbers.

For instance, I might ask myself about my money: how much debt do I have? What does my savings account look like? And do I have any money invested?

Getting answers to these questions will help you know where to start.

2. Make a budget

Budgeting is a key part of how to create a financial plan that works. Without knowing exactly how much money you have coming in compared to your total outgoings, it’s impossible to save for the future or make smart financial decisions.

A budget must work for you, which means finding a method that suits your circumstances. The 50/30/20 rule, or the cash envelope system, or zero-based budgeting are all popular ways I recommend budgeting.

To create my budget, I go over my bank statements to make a list of all my regular outgoings. Then, I group the expenses into lists of “needs” (housing, utilities, groceries, travel, etc.), “wants” (shopping, leisure, and entertainment), and “savings.”

Next, I’ll total up my income. Income includes any interest or property rental income I might receive in addition to my monthly salary.

Then, I’ll take away my monthly expenses from my income and see if I have any money left over or have a shortfall. If it’s the latter, I ask myself, where can I make cuts?

Now you have your monthly budget, you can realistically use your money plan to set targets for the future.

3. 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.

Your emergency fund should have enough money to handle at least a few months of expenses and more if you want. Make sure the amount is something you’re comfortable with and that it will help you if something unexpected happens.

How to create a solid financial plan

4. Pay off debt

When you make your money plan, be sure it includes a debt management system and a plan for paying 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, credit card balances, and the damage lots of debt can do to your credit score, you’re better off prioritizing paying your debts.

Create a debt pay-off strategy and be patient but consistent. Work towards being able to say, “I’m debt-free!”

5. Track your spending

A master plan for your money should be an accurate representation of your finances, which means accounting for exactly where your money is going.

My favorite way to track my money is using an expense tracking sheet or app such as You Need A Budget. I can manage my money easily and access my finances anywhere and anytime.

You do need to commit to logging your purchases regularly, though, so an app or sheet may not work for you if you don’t like admin work!

A pen and paper or a budget planner will work just as well! The important thing is that you track every purchase you make and use the information you find to cut spending and improve your finances. Remember to adjust your budget accordingly!

6. Invest your money

If you are serious about building wealth and want to know how to make a financial plan, you’ll need to put your money to work, which is where investing comes in.

However, before you invest any money, it’s important to have clear objectives. Think about the reason for the investment, when you’ll need the money, and what your risk tolerance is.

Investing is a long-term activity, so you have to commit to it if you 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. Put aside your emergency savings and money for your short-term goals (i.e., the money you’ll need in 5 years or less).

You also want to ensure you have a basic understanding (at minimum) of any investment you make (e.g., the stock market, real estate, or small business). You should also understand investment terms.

Your investment plans should be part of your monthly budget, where you allocate a certain percentage of your income toward your investment goals.

7. 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 backup plan, protecting your assets in the event a life circumstance occurs that requires a large amount of money to resolve.

I make sure my insurance coverage includes health insurance, auto, disability, life, home or rental, and business insurance.

Basically, I want to protect anything of major importance and high value to ensure that I (and my loved ones) are protected financially.

Having the right insurance can turn what could otherwise be a major disaster into a mere inconvenience.

8. Create a plan for retirement

To have the lifestyle you dream of in retirement, you need to plan adequately for it.

You’ll need to determine how much you will need after retiring from work, considering inflation with your retirement income, and how you plan to save and invest for that period. Opening tax-advantaged IRAs (individual retirement accounts) helps you get more from your savings by paying less tax.

While retirement might seem like a lifetime away, it’s never too early to start! Preparing for retirement is how to make a financial plan that will enable you to live life on your terms when the time comes!

9. 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. Avoiding tax planning can impact your cash flow in a major way.

In addition, you definitely want to look into tax-saving 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 consult a tax accountant, financial advisor, or robo-advisor to help ensure your tax system is adequate. You should also check out our blog post on how to reduce your taxable income!

10. Create an estate plan

Estate planning is not something many 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 an estate planning attorney can help you set things up correctly.

This is an important part of my financial plan because I intend to transition generational wealth to my children.

11. Review your plan frequently

Once you have your money plan outlined and churning along, it’s important to review it frequently. Then, make the necessary adjustments if your goals or the circumstances around your life change.

For instance, maybe your insurance needs to change, or how risk averse you are changes, or you get married or have kids. At a minimum, you want to check your overall financial system at least every six months.

I find that when I check in frequently, it’s easier to deal with unplanned life occurrences, bounce back from setbacks, and accomplish my financial goals.

Example of adjusting your plan as you go through different life stages could be as follows:

  • Young adult: Ages 18 to 25 is a great time to focus on saving as much as possible and reducing debt to prepare for the next stage of your life.
  • Foundations and family: Between ages 26 to 45 you may decide to become a homeowner and a parent in this phase. Now is a good time to try to generate more income or cut unnecessary expenditure as new expenses come in.
  • Retirement: Based on the age you plan to retire, it’s time to enjoy your hard work and savings efforts. Plan out what withdrawals you’ll need to make from your nest egg on an annual basis. At the same time you’ll want to ensure the money you don’t need to spend keeps growing.

When drafting your financial plan, don’t forget to factor in your aspirational needs such as vacations and car loans. Whilst life doesn’t always go to plan, it’s important to be as financially prepared for events as possible to avoid getting into debt.

With each financial plan review and life stage, you can also speak with a financial advisor for specific guidance if you feel the need to do so.

12. 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.

Have a solid financial plan, 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 money plan to bits because it just doesn’t seem fun.

However, as long as you keep your reasons WHY you want to be financially free in focus and try to rebound quickly from your mistakes, you’ll do just fine.

It’s all about assessing your mistakes, 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.

Expert tip: Consider your needs for each life stage

In my opinion, financial planning for different stages of your life is the smartest move you can make. During your life, there will be changes to where your money is spent and your financial interests and goals, and it’s important to consider these carefully. You may find that instead of rent prices you start thinking about mortgages and how to get one.

For example, when I was in my 20s, my main goal was to reduce my debt to improve my chances of being approved for a mortgage. But now I’m a homeowner in my 30s, I want to make sure that I am financially stable for my children and their future by making smart money-related decisions (that means no more blowing money on clothes that I don’t really need!).

Determine the type of financial plan you need

Part of learning how to make a financial plan is determining what type of plan you need. Don’t think it’s too early or too late to organize this. Quite the contrary—now is the PERFECT time to start!

Make a plan for yourself if you’re single

If you’re single, it’s important to establish goals and systems that not only help you meet your immediate money needs but that ensure your future self will be taken care of.

A big mistake is assuming you’ll meet someone who will care for 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.

How to make a financial plan for your marriage

If you are married or have a significant other, you need to manage 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 investments.

Should you have joint accounts or separate accounts?

Having joint accounts is great for finances in marriage, 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” money 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.

Tips on how to frequently review your financial plan

Now that you know how to make a money plan, here are some tips to help you check up on your goals.

1. Establish a routine

Allocate some time each week or, at minimum, once a month, unfailingly, to do a financial checkup.

Make it a coffee date with yourself, or put on some nice music, 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 to lay out 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 bill payments you previously scheduled or sent out. Make sure any pending bills or debt repayments have been paid or scheduled.

Compare your receipts against your credit card transactions and confirm the balance. Do a budget review and compare your actual spending to your budget. Once a month, establish your budget for the upcoming month. 

4. Review your savings and investments

If you have automated your finances and are set up to make transfers to your savings or investment accounts, check in on them. This would also include any automatic deposits you have set up for 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, or try automatic rebalancing. Be sure to review your fees too!

In addition, bonds are good options to add to your portfolio if you’re risk-averse.

5. Review your insurance policies

You also want to ensure you have the right insurance for your life. Which includes health, auto, disability, home, personal property, and business, as well as understanding the importance of life insurance, 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.

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, including your net worth by age.

Your main priority should be to pay off as much debt as possible, starting with your high-interest debt. Then, grow your assets, and your net worth will grow over time.

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, but as they work on improving their finances, given time and the continued practice of good financial habits, this will change.

Reconciling your accounts and planning your finances ensures you are aware of everything happening with your money and that you are on the right path to accomplish your goals.

Questions to ask when you review your financial plan

Some questions to help you along with the process could include:

  1.  What steps did I take this past month that got me closer to my goals?
  2.  What things happened that have put me further away from my goals?
  3. Was my spending in line with my personal core values?
  4. What money mistakes have I made in the last month?
  5. Why did I make them?
  6. Are my financial goals still realistic?
  7. What big expenses are coming up soon?
  8. Is my emergency fund fully funded with 6 months of expenses based on my current basic expenses?
  9. Am I saving enough to retire comfortably according to my decided retirement plan amount?
  10. Am I meeting my other short-term savings and investment goals?
  11. Am I on track with my savings for my children, including 529 plans?
  12. What steps can I take to ensure 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. If you stay committed to improving your finances, you WILL see progress.

What is a financial plan using an example?

Take a look at the example below for inspiration. Use it as a starting point and edit it to suit your unique financial situation and life goals.

A good financial plan should include details of your:

  • Monthly income
  • Monthly expenses
  • Savings
  • Debts
  • Assets
  • Investments
  • Insurance
  • Retirement strategy

Example financial plan

Emma is in her early 20s and wants to become debt-free in the next year.

  • $4,650 monthly income
  • $4,000 monthly expenses
  • $250 monthly contribution to a savings fund
  • $250 monthly debt payments ($3000 total debt)
  • $0 assets
  • $0 investments
  • $100 monthly insurance fees
  • $50 retirement savings

By reviewing her expenses, Emma has realized that she can save $250 a month by cutting out takeout coffees, eating out, and swapping to a lower-cost grocery store. This means that she can achieve her debt-free goal in 6 months instead of 12 while still contributing to her savings!

Is a financial plan the same as a budget?

No, a financial plan and a budget are two very different things.

Knowing how to create a financial plan is a tool for managing long-term finances (5, 10 or 20 years), whereas a budget organizes your money in the short term, usually on a weekly or monthly basis.

What they both have in common is the need to be regularly reviewed and updated to make them as effective as possible. A money plan and better budgeting complement each other, so use both to truly take control of your finances, both now and in the future.

Personal financial terms like financial planning and budgeting can be confusing, especially if you read conflicting information in the media. But it’s important to know their correct meanings so you can use them the right way.

What is a full financial plan?

A full financial plan is a detailed breakdown of your current situation, goals, and the step-by-step actions to achieve them. Its purpose is to help you understand your circumstances, which is the first step everyone needs to take before making positive changes.

Your plan should be a physical document so everything is written down. Depending on your preferences, it can be a hard copy or an electronic copy. The important thing is to have your money objectives in one document rather than separated into many different files.

The easiest way to get started is to gather information from all your financial accounts into one document.

When building your plan, remember to customize it to your unique finances and personal needs. There’s nothing wrong with using an example to get you started, but it needs to reflect your life accurately so it can help you plan ahead.

For example, don’t overlook the odd cash withdrawal for a soda. Instead, factor it into your full money plan because it could help you highlight areas of unnecessary spending!

If you found this information about money organization and planning helpful, these other posts offer more ideas!

Create a solid financial plan and it will help you become financially successful

Learning how to make a financial plan customized to your goals can help you attain them! Remember, this is your journey, not anyone else’s, so having a plan to succeed with your finances is super important.

I completely believe that planning ahead for the life you desire is 100% worth it. As you create a system that works and learn how to manage your money, feel free to leverage our free financial courses!

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