No one cares about your financial well-being more than you, so it's important to have a financial plan for yourself. Knowing how to make a 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 money plan looks different. And if you’re considering how to create a financial plan or even, "what is a financial plan?", 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 article, 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 solid money plan.
What is a financial plan?
It's simply a structured approach to help you reach your financial goals. It details your current money situation, as well as your financial system, including things like investing, saving, retirement, and estate plans.
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 your money.
How to make a 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 money 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
Part of learning how to make a financial plan is determining what type of plan you need. Don’t think that it's too early or too late to be organized about this. Quite the contrary—now is the PERFECT time to start!
How to create a financial plan for yourself
If you’re single, it's important to establish a solid financial plan that not only helps you meet your immediate goals, but that ensures your future self will be taken care of.
That means doing all the things mentioned above without making any assumptions that things will somehow work themselves out.
A big mistake is 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.
How to make a financial 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 money plan.
How to make a financial plan
Below, you’ll find ten steps for how to make a financial plan. These steps will cover all the basics you need to know.
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.
Your goals for your money can include anything from getting a new job with higher earnings to paying off student loans and credit card debt. What's important is that you know what your priorities are.
Evaluate your money situation
As you create your goals, it's important to know where you're at with money. You should take time to understand how you handle money/what you'd like to do differently.
You should also go over the numbers.
How much debt do you have? What does your savings account look like? And do you have any money invested?
Getting answers to these questions will help you know where to start.
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.
Your emergency fund should be enough money to handle at least a few months of expenses, and more if you want. Make sure the amount is something that you're comfortable with that will help you out if something unexpected happens.
3. Pay off debt
When you create a financial plan, be sure it includes a debt management system and how you'll 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, credit card balances, and the damage lots of debt can do to your credit score, you're better off paying your debts first.
4. Create a financial plan to invest
If you are serious about building wealth and want to know how to make a financial plan, then you're going to need to put your money to work for you. Which is where investing comes in.
However, before you put any of your money into investments, 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 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., the 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 backup 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 insurance, 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 with your retirement income, 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 with your retirement plan! Preparing for retirement is how to make a financial plan that will enable you to live life on your terms when the time comes!
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 sit down with a tax accountant or financial planner to help ensure your plan for taxes is adequate. You should also check out our blog post on how to reduce your taxable income!
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 financial plan frequently
Once you have your money 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 to change, your risk tolerance changes or you get married or have kids. At a minimum, you want to check in on your overall financial system at least every six months.
When you check in frequently, 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 money 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
Now that you're aware of how to create a financial plan, here are some tips to help you check up on your goals.
1. Establish a routine
Allocate some time each week or at the minimum once a month, unfailingly, to do a financial health check-up.
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 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/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. Which includes health, auto, life insurance, 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.
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. Then 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, 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 out 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:
- 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 basic expenses I currently have?
- Am I saving enough to retire comfortably according to my decided retirement 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.
Create a financial plan that will help you become financially successful
Learning how to make a financial plan that is customized to your goals can help you attain them! 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. As you work to create a solid financial plan and learn how to build wealth, feel free to leverage our example of a financial plan to create yours!