It’s important to have a personal financial plan, as no one cares about your financial well-being more than you do. Knowing how to make a financial plan will help you save money, afford what you want, and achieve long-term goals like savings for college and retirement.
This is probably not a surprise, but everyone’s money plans look different. If you’re wondering about solid financial planning or even “What is a financial plan?” you’re in the right place.
In my opinion, money planning is important, especially for women’s financial plans.
We all want to become economically independent and build wealth. It’s a big deal to embark on a journey to economic independence!
It marks a fresh beginning from our money, and that means we are set out to achieve something that can change our lives for the better.
In this article, we will explain everything you need to know to plan for your future (I follow these same steps for my finances).
Keep reading and be prepared to take some action to kickstart your solid money plan.
What is a financial plan?
It’s just a structured approach to achieving your financial goals. It details the current financial situation and financial system, including investments, savings, retirements, and real estate planning.
In addition to these key elements, you can also include milestones that will be reached along your financial journey to support long-term success.
So, in simple terms, what is financial planning? It is simply a long-term, organized approach to money management.
Create a list of things to plan
First, create a list of what you need to have, or build on your journey to financial security. These items below are essential for your money planning (click on the links below to dig deeper into each one!):
You know what to plan, so incorporate it exactly into your financial plan.
How to create a financial plan
Below are 12 steps to how to plan your financial plan. These steps cover all the basics that will help you get started. Please note that your plans are unique to you. Feel free to customize it if necessary.
1. Write down your financial goals
Having financial goals is the foundation of your financial success. After all, you need to know what you want to do to achieve it.
However, when setting goals, you need to make sure they are clearly defined and prioritized accordingly.
It’s great to have a big, lofty goal! But break them down into small chunks. This way you won’t be overwhelmed by the task and you can easily measure your progress.
Your financial goals include everything from getting a new job with a higher income to paying off student loans, car loans and credit card debt. The important thing is that you know your priorities.
We will assess your money situation
When creating goals, it is important to know where you are with money. It should take time to understand your relationship with money and what you want to do differently.
You also need to check the number.
For example, I might ask myself about my money: how much debt do I have? What does my savings account look like? And am I investing money?
Getting answers to these questions will help you know where to start.
2. I’ll make a budget
Budgeting is an important part of how you can create a working financial plan. Without knowing exactly how much you received compared to your total exit, it is impossible to save for the future or make wise financial decisions.
The budget needs to work for you. This means finding a way to suit your situation. The 50/30/20 rule, or cash envelope systems, or zero-based budgeting, are all popular ways to encourage budgeting.
To create a budget, look at your bank statement and create a list of all your usual outgoings. Next, you group expenses into a list of “needs” (housing, utilities, groceries, travel, etc.), and “hope” (shopping, leisure, entertainment), and “savings.”
Next, add up your income. Income includes interest or real estate rental income you may receive in addition to your monthly salary.
Then I take away the monthly expenses from my income and see if I have any money left or shortage. In the latter case, I ask myself, where can I make the cut?
Now you have your monthly budget. You can use your money plan realistically to set future goals.
3. Emergency funds will be launched
It is also very important that one of your goals includes planning to deal with emergencies. You want to make sure you are ready to survive the storm. Otherwise you will be in debt again.
Your emergency funds should have enough money to handle at least several months’ expenses and more. Make sure that that amount is something you’re comfortable with and make sure it helps in case something unexpected happens.
4. I’ll pay off my debt
When planning your money, make sure it includes a debt management system and a plan to pay off your debt. Sadly, if you have a ton of debt, you can’t really kickstart your financial future.
It’s better to prioritize paying debts between high interest rates in the sky, large minimum monthly payments, credit card balances, and the losses that many liabilities can make to credit scores.
Create a debt payoff strategy and be patient but consistent. You will be able to say, “I have no debt!”
5. Track your spending
Your money master plan should be an accurate representation of your finances. This means explaining exactly where your money is heading.
My favorite way to track my money is to use an expense tracking sheet or app that requires a budget. Easily manage your money and have access to finances anytime, anywhere.
However, you may need to commit to logging purchases regularly, so if you don’t like the admin’s job, your app or sheet may not work.
Pen and paper or budget planners work just as well! The key is to track all the purchases you create, use the information you find to reduce your spending and improve your finances. Don’t forget to adjust your budget accordingly!
6. I’ll invest your money
If you are serious about building wealth and want to know how to create a financial plan, you need to make money, where investments come from.
However, it is important to have a clear purpose before investing your money. Think about the reasons for your investment, when you need money, and what your risk tolerance is.
Investing is a long-term activity, so if you want to see your money grow, you need to commit to it.
Are you worried that you will need money in the short term? Well, that’s the purpose of your savings account. Put emergency savings and money aside for your short-term goals (i.e. money you need within five years).
We also want to ensure that you have a basic understanding (at least less) of the investments you make (such as stock markets, real estate, or small businesses). You also need to understand the investment terms.
An investment plan is part of your monthly budget and requires you to allocate a certain percentage of your income to your investment target.
7. Get the right insurance
After working hard to make your money, the last thing you want is an unplanned event to wipe you out. Insurance is essentially a backup plan and protects your assets in the event of a living environment that requires a large amount of money to resolve.
I make sure my insurance includes health insurance, car, disability, life, home or rental, and business insurance.
Essentially, I want to protect something of great importance and high value to ensure that I (and my loved ones) are financially protected.
Having the right insurance can turn things that could otherwise be a major disaster into mere inconveniences.
8. Create a retirement plan
To get the lifestyle you dream of while you retire, you need to plan it properly.
After retirement, you should consider the amount you need to consider inflation in your retirement income and planning to save and invest for that period. Opening a tax-advantaged IRA (individual retirement account) will help you increase your savings by reducing your tax amount.
Resignation may seem like a once-in-a-lifetime separation, but it’s never too early to get started! Preparing for retirement is a way to develop a financial plan that allows you to live on your terms when the time comes!
9. Tax Planning
Yes, taxes! Taxes are annoying, but they certainly don’t go away anytime soon.
So make sure your long-term income forecast includes taxes. Avoiding tax planning can have a significant impact on cash flow.
Additionally, you want to look at tax-saving investment options and speed up the related tax credits that you can apply to save money on tax payments.
You can consult with a tax accountant, financial advisor, or robo-advisor to ensure that your tax system is appropriate. Also check out our blog post on how to reduce your taxable income!
10. Create an estate plan
Real estate planning isn’t something that many people want to think about, but it’s essential! This will allow you to determine exactly what will happen to your assets once you are gone.
This includes listing all assets, creating a will, and making them accessible to those who need access. A financial planner or estate planning lawyer can help you set things up correctly.
This is an important part of my financial planning. Because I intend to transfer the wealth of generations to my children.
11. Check your plans frequently
Once you have outlined and made your money plan sound, it’s important to review it frequently. Next, if your goals or life situations change, make the necessary adjustments.
For example, you may need to change your insurance, or you may need to avoid risks, or you may need to marry or have children. At least every six months, you need to check the entire financial system.
If you check in frequently, I think it’s easier to deal with unplanned life events, bounce back from the set break and achieve your financial goals.
Here are some examples of how you can coordinate your plans through different life stages:
- Young Adult: Ages 18-25 are the perfect opportunity to focus on saving as much as possible and reducing your debts to prepare you for the next stage of your life.
- Foundation and Family: Between the ages of 26 and 45, you can decide to become a homeowner and parent in this phase. Now is the good time to generate more income and reduce unnecessary spending as new expenses emerges.
- retirement: It’s time to enjoy your efforts and savings efforts based on the age you plan to retire. Plan which withdrawals you need to get from the nest egg each year. At the same time, you will want to ensure that you have money you don’t need to spend.
When drafting a financial plan, don’t forget to consider your ambitious needs, such as vacations and car loans. Life doesn’t always go for planning, but it’s important to prepare financially for events as much as possible to avoid debt.
At each financial plan review and life stage, if you feel that you need to do so, you can also talk to your financial advisor about specific guidance.
12. Continue the course, avoid overexpenditures, and learn from your mistakes
Your journey to financial independence is not always easy. There are tough days, weeks, and even months.
Have a solid financial plan, be disciplined and avoid spending. You can see how amazing you feel when you really work together to stick to your budget.
When you are working on your finances, you may still make a mistake with your money, and it’s fine. Sometimes you may not be able to resist the urge to buy something that is not on your immediate budget. And sometimes you’ll feel like tearing your whole money plan into bits.
However, as long as you have a reason to defend your financially freeing reasons and try to quickly rebound from mistakes, you will do well.
It’s about assessing your mistakes, understanding why you made them, and planning to avoid them again. You will then need to take these lessons and apply them to your future success.
Expert Tips: Consider the needs of each life stage
In my opinion, financial planning at different stages of your life is the cleverest move you can make. During your life there will be changes in the place where your money will be spent and your financial benefits and goals, and it is important to consider these carefully. Instead of rent, you may be able to start thinking about a mortgage and how to get it.
For example, when I was in my 20s, my main goal was to reduce my debt to improve the likelihood of mortgage approval. But now I’m a homeowner in my 30s. I want to make smart money-related decisions to make sure I’m financially stable for my child and his future (i.e. I really don’t need it).
Determine the type of financial plan you need
Learning how to create a financial plan is determining the type of plan you need. Don’t think this is too early or too late to sort it out. I’m totally the opposite. Now is the perfect time to start!
If you’re single, make a plan for yourself
If you are single, it is important to establish a goal and system that will not only help you meet your immediate financial needs, but also ensure that your future self will take care of you.
The big mistake is to assume you will meet someone who will take care of you and deal with the finances of your relationship.
If your relationship status changes, or if you get married, if you already have things in place for yourself, you will be well equipped to plan your finances together.
How to make a financial plan for your marriage
If you are married or have important others, you need to manage your finances as a team.
Discuss budget and money goals and together make financial decisions. Understand where your money is heading and how much money you have in savings and investments.
Do you need a joint account or an individual account?
Having a joint account is perfect for marriage finances, but I also believe you have your own personal savings account. As women, it is important that we have the “own” money that we build our own sense of security and that we bring to the table.
But don’t feel like you need to keep your personal accounts secret. Remember that marriage and dedicated relationships thrive with openness and integrity.
Tips on how to frequently check your financial plan
Now that you know how to plan your money, here are some tips to help you find out your goals.
1. Establish a routine
Allocate at least once a week or at least once a month, undoubtedly, at least one for a financial examination.
Have a coffee date yourself, wear some nice music, drink some hot tea at home, and check things in. We recommend setting reminders on your calendar so you don’t forget to check in.
2. Set and confirm your financial goals
If you haven’t done it yet, it’s important to lay out short-term and long-term financial goals. So you know exactly what you’re doing with your money.
As time goes on, you want to review and reassess your goals to make sure they are still something they want to achieve and that you are on track to meet them.
3. Adjust your bank account and bill payments
Check your bank account debit for payments on previously scheduled or submitted invoices. Make sure that pending invoices or debt repayments are paid or scheduled.
Compare receipts with credit card transactions and check your balance. Do a budget review and compare your actual spending with your budget. Once a month, we will establish a budget for next month.
4. Check your savings and investments
Check them in if you are set up to automate your finances and transfer them to your savings or investment account. This includes automated teller accounts that you set up for your retirement account.
If you have no automation set up, create or schedule manual transfers to your savings and investment accounts to ensure that the transaction was successful.
Also, check your entire investment portfolio or try an automatic rebalancing to rebalance and diversify as needed. Be sure to check the prices too!
Furthermore, in the case of risk aversion, bonds are a good option to add to your portfolio.
5. Check your insurance policy
You also want to make sure you have the right insurance for your life. This includes understanding the importance of health, automobiles, disability, home, personal property, business and life insurance.
Set reminders twice a year to sit down and evaluate the costs of different policies and see what else you have.
6. Check your net worth
Your net worth can almost be described as a thermometer used to measure your financial health. We also want to track it, including our net worth by age.
Your main priority is to start with your high profits and pay back as much debt as possible. Then, if you expand your assets, your net worth grows over time.
It is also important to track your net worth over the long term to ensure that you are in line with the long-term and financial goals you have tried to achieve.
Many people start with negative net worth, but this changes when they work on improving their finances given the time and ongoing practice of good economic habits.
By adjusting your account and planning your finances, you will recognize everything that’s going on with your money and ensure you are on the right path to achieving your goals.
Questions to ask when reviewing your financial plan
You can include some questions to help you along with the process:
- What steps have I taken over the last month?
- What happened to have brought me further away from my goal?
- Did my spending go along with my personal core values?
- What financial mistakes did I make last month?
- Why did I make them?
- Are my financial goals still realistic?
- What big costs will increase soon?
- Is my emergency fund fully funded at a six-month cost based on current base costs?
- Are you saving enough to retire comfortably according to the determined retirement amount?
- Do I meet other short-term savings and investment goals?
- Am I getting my savings for my kids on track, including a 529 plan?
- What steps can we take to ensure a better month than next month?
Tip: Keep a journal answering these questions and then check past entries every few months. Especially when you look at progress that has progressed over time, it’s a great way to stay motivated. If you continue to commit to improving your finances, you will see progress.
What is a financial plan using an example?
See 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 the following details:
- monthly income
- Monthly expenses
- Save money
- liabilities
- assets
- investment
- insurance
- Resignation strategy
Examples of financial planning
Emma is in her early 20s and hopes to get rid of her debt next year.
- $4,650 monthly income
- $4,000 a month
- $250 a month to the Savings Fund
- Debt payment of $250 per month (total debt of $3,000)
- 0 dollar assets
- 0 dollar investment
- $100 a month insurance premium
- Retirement savings of $50
By checking the costs, Emma realized that cutting out takeaway coffee, eating out, and replacing it with a low-cost grocery store could save $250 a month. This means that she can achieve her debt-free goals in six months rather than 12, while contributing to her savings!
Is the financial plan the same as the budget?
No, financial planning and budget are two very different things.
Knowing how to create a financial plan is a tool for managing your long-term finances (5, 10, or 20 years), but budgets usually organize your money in the short term, weekly or monthly.
What they have in common is that they need to be reviewed and updated regularly to be as effective as possible. Money plans and better budgeting complement each other, so use both to really control your finances both now and in the future.
Personal financial terms such as financial planning and budgeting can be confusing, especially when reading conflicting information in the media. But it is important to know the correct meaning of them so that you can use them in the right way.
What is a complete financial plan?
A complete financial plan is a detailed breakdown of current situations, goals, and step-by-step actions to achieve them. The purpose is to help you understand your situation. This is the first step everyone needs to take before making positive changes.
Your plan must be physical documentation, so everything will be written down. It could be hard copy or electronic copy depending on your preference. The important thing is to put your money goals in one document rather than splitting them into many different files.
The easiest way to get started is to collect information from all your financial accounts into one document.
When planning, don’t forget to customize it to your own finances and personal needs. There’s no problem with starting with an example, but it should accurately reflect your life and help you plan ahead.
Don’t overlook the strange cash withdrawals of soda, for example. Instead, use it to your full money plan, as it helps to highlight the area of ​​unnecessary spending!
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Creating a solid financial plan will help you succeed financially
Learning how to customize your financial plan to fit your goals will help you achieve them! This is your journey, not someone else’s journey, so it’s very important to plan your success in your finances.
I fully believe that planning ahead for the life you want is 100% worth it. Once you’ve created a system that will work and learn how to manage your money, feel free to take advantage of our free financial courses!