We all have goals in life – things like starting a business, buying a house, getting married – but money problems often sneak in and prevent us from achieving these objectives.
And so we are left wishing we had done some financial planning to pay for the necessities and to cover any of life’s unexpected events … and we’d still have enough left to put towards our goals.
If any of this sounds familiar to you, then you probably don’t have a financial plan in place.
At its most basic, a financial plan helps you meet your current financial needs and offers a strategy to achieve future financial stability, so you’re able to move forward with your goals.
In this post, you’ll learn everything you need to know about financial plans. We’ll also share an eight-step process to help you create your own personal financial plan, plus a few templates that can help you save money and time.
- What is a Financial Plan?
- What is a Personal Financial Plan?
- How to Create a Personal Financial Plan in 8 Easy Steps
- Financial Plan Example [Templates]
- Financial Plan App Options
- Want to Learn More?
What is a Financial Plan?
A financial plan is a roadmap for an individual or a company to reach its goals.
It takes into your account your existing financial situation and goals, then creates a detailed strategy based on your prioritized objectives, telling you exactly where to spend your money, and when to save.
Additionally, financial plans help you prepare for the unanticipated by having you set aside a pot of money. When an unexpected job loss, illness or economic downturn occurs, you can rely on these funds to cover your day-to-day expenses.
Essentially, you can use a financial plan to take control of your money such that you can achieve your goals and ease worries you may have about your wellbeing.
In the past, people had to hire a professional to create a financial planner for them. But with the advancements in technology, you should be able to create one on your own.
It’s pretty easy with a financial plan template, which you can modify to reflect your own goals, cash flow, etc. You’ll find some handy templates you can use, later in the article.
What is a Personal Financial Plan?
A personal financial plan is a documented analysis of your personal finances, including your earnings, liabilities, assets, and investments.
Its purpose is to help you assess the feasibility of your personal goals and to understand the steps that you will need to take – money-wise – to accomplish them.
Your personal financial plan can stretch over weeks, months or years, based on the estimated completion time of your goals.And you can adjust it at any time to reflect new or changing priorities.
How to Create a Personal Financial Plan in 8 Easy Steps
Making a financial plan could give you more confidence with your cash. Plus, it means fewer nights worrying about those pesky bills.
The trouble is many people don’t know where to get started. They worry about things like “how much does a financial plan cost?” and assume they need endless professional support.
The good news? It’s never too late (or too early) to start working on your financial plan. Even better – creating a financial plan isn’t as complicated as you’d think. You can even break it down into 8 easy steps, like this:
Step 1: Review your current situation
Before you start the actual “planning” part of the process, you need to know where your journey is going to start. That means checking out what your financial situation is like right now.
Honestly, everyone could benefit from investing in more frequent financial checkups, but it’s easy to put off looking at your bank statements.
Think about it – when’s the last time you actually looked at all of your payments for gas, electricity, broadband, and Netflix, and figured out what they add up to?
Grab your last 6 to 12 months of bank statements and highlight every regular outgoing expense in one color, then highlight your irregular expenses in another.
It might be helpful to categorize these costs into personal and “crucial” expenses. Once you’ve got all the right info in front of you, ask yourself:
- Where can I cut down on spending?
- How much could I save by switching to a different service?
- Do I really need all of my “optional” expenses?
Step 2: Set short-term and long-term goals
Now you have a starting point for your journey to financial freedom.
The next step is figuring out where you’re going. This is an important component in your “financial plan for dummies” journey.
Setting solid goals gives you direction and clarity when making decisions about your finances. Your goals will show you if you’re moving in the right direction.
Ideally, you’ll need your goals to be S.M.A.R.T. This means they’re:
Don’t just say you want to have more money in your savings. Write down a statement that explains exactly what you want to accomplish, such as:
“I want to have at least $2,000 in my savings account by the end of next year.”
Short-term financial goals, like “I’ll put $100 in my savings next month”, keep you motivated by showing constant progress. Long-term goals give you a more consistent direction to move in.
Step 3: Create a plan for your debts
No-one likes thinking about debts – but these are issues that you just can’t ignore if you want to be financially savvy. Personal financial plans can help.
You can’t make huge progress with your short and long-term goals if your interest and repayments are weighing you down. So figure out how to pay what you owe first.
Start by creating a plan to get rid of your most problematic debts. These are the expenses that cost the most due to excessive interest rates and fees. Get rid of those as fast as you can.
If you’re struggling to handle several debts at once, it might help to see whether you can consolidate everything into one, cheaper loan.
The bottom line is you need to take action and start working towards being debt-free. Remember, debts include everything from immediate issues, like credit cards, to long-term expenses, like student debt.
Step 4: Establish your emergency fund
An emergency fund is like a financial safety blanket.
No matter how “prepared” you think you are, there’s always a chance that some unexpected cost will come and sweep you off your feet.
Emergency funds protect you against things like unexpected illness, suddenly losing your job, or even just a bill that you forgot to pay.
While the exact amount of emergency funding you have depends on you, it should generally cover about 3 to 6 months’ worth of your fixed expenses. You can also save enough to cover variable expenses like entertainment and food too.
Emergency funds are beneficial for anyone. However, they’re particularly important if you’re a freelancer, someone with a poor credit score, or someone with variable income.
When setting up your personal financial plans, make sure you have an emergency fund in place.
Step 5: Start estate planning
Estate planning is one of those complicated terms that most people ignore – assuming it only applies to wealthy people, or people approaching retirement.
However, it’s essential that you think about protecting your family when you’re not around. A proper estate plan gives you total peace of mind.
Estate plans include:
- Last will and testament
- Healthcare directives
- Power of attorney
- Trust information
This document might also include other clauses for things like final disposition instructions and guardianship nominations.
Estate planning might not be the best thing you can do with your Friday evening fun-wise, but it will ensure that you’re protected for anything.
Step 6: Begin investing in your future
The next step is building whatever wealth you already have, so you’re prepared for the future. You can begin focusing on your savings and making investments.
You might have different plans to suit your short-term and long-term goals. For instance, your short-term financial plan might cover the steps you’re going to take to build wealth now. Your 5-year financial plan might look at things like retirement.
Investing for retirement is one of the best ways to ensure that you’re ready to tackle the future. When you begin planning for retirement, you’ll need to consider a few variables like:
- Desired retirement age: When would you like to stop working (be realistic here)
- Desired lifestyle: What kind of lifestyle do you want? Do you want enough cash to do whatever you like? Then plan for that!
- Current health: Health is definitely a big contributor to wealth. If you know health problems are likely for you, make sure you’re ready to tackle the issue.
- Savings rate: How much are you saving towards the future right now?
If you’re brand-new to investing, seek out some extra support. There are wealth advisors out there that can introduce you to different kinds of investment accounts and vehicles.
Step 7: Get protected
Just as emergency funds protect you from unexpected surprises in life, insurance defends your cash from any unforeseen risks.
Having the right insurance means that you won’t need to constantly break into your savings every time something goes wrong. For instance, home insurance means that you’re properly protected from things like natural disasters and break-ins.
Car insurance ensures that if anything goes wrong with your car, you’re ready to jump in and fix the issue – without massive payments.
Having an emergency fund and making sure you’re insured properly means that you can stay on top of all your savings goals – even when the going gets tough.
Make a list of all the insurance you might need when planning financial plan components.
Step 8: Keep track of your plan
The importance of a financial plan is something you can’t afford to underestimate.
The more you know about your current financial situation and where you’re headed, the more confident you’ll be in your spending.
However, getting a financial plan example template and building your own strategy is just the first leg of the journey. You also need to commit to actively tracking your progress.
Check in every three months or so, and make sure you’re moving in the right direction. A lot can change in your financial situation within just a few weeks.
Remember to update your plan when significant events occur in your life too. Having a child, getting married, or purchasing a new home will all create new considerations for you to deal with.
Actively reviewing and updating your plan means that you can enjoy a bullet-proof strategy for reaching your financial goals.
Financial Plan Example [Templates]
While you can create a financial plan from scratch, it’s always easier and quicker with a template.
Many financial plan template options are available to help you set up a financial plan. All you need to do is enter the details in their fields. You can also edit or remove fields based on the information you have available.
Even if you don’t want to use templates, these financial plan examples are a good starting point to learn what real-world plans look like and the specific finances you have to include in the document.
Here are a few templates:
Daily Successful Living offers a simple template you can use to calculate your net worth.
You can do this by adding up your assets and then subtracting all of your liabilities.
Once you have estimated your net worth, you can move onto setting some personal goals.
Smartsheet’s free financial plan template lets you create a concise personal finance plan.
Use it to assess your current financial situation, create a strategy to reach your goals, and use the plan to track progress.
You can also include details for estate planning or life insurance if needed.
Simply Stacie’s financial planner allows you to lay it all out – month-to-month – to analyze your monthly spending habits compared to what you budgeted.
If you’re working towards a goal like, say, saving for retirement, it’ll help you find opportunities to cut back and put the money towards your objective.
Financial Plan App Options
Keeping track of your money is difficult, especially when you’re unsure of your spending.
Fortunately, there are apps you can stay on top of your finances.
- Mint: Mint, besides its pleasingly minimal UI, offers a good range of money management tools. These are set around a few different areas, namely expense tracking, credit health, and saving advice tailored to your goals.
- Pocketnest: Pocketnest teams up with your bank to take you through different themes of financial planning. After you answer a few questions about your financial hitch, the app walks you through each stage of your plan, giving you to-dos along the way to help address any gaps.
- YNAB: YNAB offers bank syncing, transaction matching, goal tracking, and more. It can help you prepare for the future by breaking up larger expenses into more manageable, bite-sized amounts. The best expenses are ones you can easily manage.
Each of these apps make creating a financial plan a lot more convenient. Being able to view your income, expenditures, investments, etc. at a glance helps you jot down details much faster than gathering information from individual accounts.
Financial plans aren’t just for people with high income. Anyone can utilize them to identify their goals and create a plan for achieving them.
If you create a financial plan today, you would be able to work on achieving your life’s goals strategically.
It doesn’t matter where you stand. The important thing is that you get to fulfill your ambitions while improving your financial stability.
Do you want to start a side hustle, go on a holiday, retire by 40? You decide and then create a personal financial plan for achieving your purpose.
P.S. Life’s going to throw you curveballs that can affect your financial situation. Rather than accepting them as your fate, battle through them. You have the most powerful weapon of them all – your financial plan!