Building your own personal financial plan will be crucial in your success in managing your money and investments. It also helps you visualize your path to a brighter financial future.
Yet so many times, we neglect to actually take the steps to build our own financial plan.
You might be afraid to take the next steps because you’ll have to face your financial demons. Or maybe you just have no idea where to start and it intimidates you.
Don’t worry, either is pretty common, but my goal here is to help you not be afraid and start to have a direction for your plan.
Personal Financial Plan Definition
Although you can probably sum up for yourself what a personal finance plan is, I’m always one to want to define it before we move on.
It helps us all get on a similar page, regardless if you don’t necessarily use my exact definition.
So what is financial planning?
A financial plan is used to organize how you handle your money and finances so you have less stress and are on a path to long-term success.
Think of it as your roadmap or your building blocks to what’s happening with your finances and what goals you aim to achieve.
The benefits of having a plan include helping you save money, reduce any debt, help your net worth grow, and to keep you financially organized.
A Personal Financial Plan Doesn’t Need to Be Complicated
One thing I mentioned early is that sometimes you might feel intimidated about creating a financial plan. It sounds a bit challenging at first.
But here’s the thing.
Anytime you hear “finances” and “plan,” you might assume it’s some elaborate, detailed framework. That was in my head when I started researching and figuring out my own roadmap.
It certainly can be quite detailed, but you do not need some 25-page manifesto of highly complicated ideas right from the start.
Even if you do not have a background in finances, you can take some simple steps on your own to make a plan that works for you.
But, if you do want a longterm financial plan, don’t be afraid to ask for help.
Financial planners/advisors sometimes get a bad wrap, but there are many who are really good and can help ease the stress of ensuring you are on the right path financially.
Here’s some more info on finding a financial planner.
Your Financial Plan Should Really Do Three Things
When you are first creating your personal financial plan, it should aim to accomplish three important things:
Help you see what’s going on currently (Analyze), help you organize where you want to go (Goals), and help guide how you are going to get there (Steps).
If I dive in a bit deeper on these simple concepts, you’d consider doing something like this:
- Analyze your current state of finances. Am I saving money? Is my spending out of control? What does my retirement look like? Do I have a will? Am I paying off any debt? No matter how bad it might be, these numbers and information need to be known.
- Write down your specific goals. What do I want to accomplish in a year, five years, ten years, and beyond? Many times, your future goals may shift, but it’s good to get this on paper and know what you want to work towards. You don’t need to focus on every goal at once, you can identify one or two at first.
- Actionable steps to get towards those specific goals. Under each main goal, you can add some simple actionable steps to how you are going to get to that goal.
As you get more comfortable with your process and your first set of financial goals, you can continue to build on it. Also, adjusting where need as you accomplish goals or something changes.
I started with four main areas in my own plan: Saving Money, Investing, Paying Debt, and Improving Career Worth. Each, of course, was then broken down into more specifics.
While your financial plan should accomplish the three things above, there are some important steps in actually creating your plan.
How to Write Your Personal Financial Plan
Now that you have a good understanding of a financial plan and what it should do for you, here are some steps in actually writing out your plan.
Everyone’s approach may be slightly different.
For example, I used Google Sheets and organized some documents in a folder. That’s it! How you choose to do the below is up to you.
Step 1: Assess your current financial situation (assets, liabilities, net worth)
Your first step with anything related to your personal finances is to know your current financial situation. This means your assets (things with value), your liabilities (what you owe or what is costing you money), and seeing where your net worth is and monitoring it.
Step 2: Organize your financial paperwork
Some people love organizing and others will hate this.
But putting your financial paperwork together and getting organized will make a world of difference. Think financial papers like your taxes, insurance, titles, bills, wills, mortgages, investments papers, etc.
I have folders in a fireproof safe with all my financial records. Easy access to what I need and hopefully protected if anything were to happen.
Step 3: Build out your income, expenses, and spending
A crucial step beside laying out my assets and liabilities was including my income and bills in one area as well. It helped me visualize where my money was going.
It also helps you catch patterns in your spending or income that may be negatively impacting your finances. It’s a great time to start canceling memberships you don’t need and negotiating your bills.
If you want to uncover hidden subscriptions and negotiate bills easy, check out Trim.
Step 4: Start setting your goals
Setting up your financial plan, means you need to have specific goals in mind. These goals should be tailored based on your finances and where you’d like it to go.
You’ll also have short-term and long-term goals, just make sure that any goals you set are specific and attainable. Some of your goals could be:
- Getting out of Debt in three years
- Paying off all credit cards and keep a 0 balance
- Increase retirement savings by X% each year
- Saving an extra $500 this month
You get where I’m going there, but think about what you personally want to accomplish this month, this year, etc.
Step 5: Write down the “why” of your goals
Besides setting goals in your financial planning, it makes sense to include the “why” for these goals.
What is the reasoning for this and why is it something you want to achieve?
It puts you in a better place to fully understand your goals or you may even find that one of your goals is not as important as you thought it was.
Step 6: Research like a boss
Since you have your goals written down, your finances, and the “why” you might be aiming for particular goals, it’s time to do some research.
There may be some things you’ll instinctively figure out, but other parts you may need to learn a bit more.
Starting reading some money and investing books, read up on various online publications, and watch videos. Whatever will help you formulate your plan.
Step 7: Start adding actionable steps to your goals
After your research and knowledge gains, you’ll be able to start adding actionable next steps to
You may not know how to achieve all of them exactly, but you might have an idea of what you need to do.
Again, don’t be afraid to ask for help from a financial planner or advisor if you are still unsure.
But, most likely many of your initial goals will be something you can figure out on your own if you are starting small.
Step 8: Review your goals and plan on a particular basis (monthly, quarterly, yearly)
Your financial plan never really reaches an end. It’s a document that you keep working on and improve.
Since your finances and life changes, you’ll need to review your plan on some recurring basis.
Pending your goals, you may want to do this monthly, quarterly, or even yearly. It’s really up to you.
Final Thoughts
Besides following the above steps, there are a few extra financial planning tips that will accelerate your results and make life a bit easier.
No big secrets here, but things to keep in mind.
- Purchase financial planning software for help with organizing and writing your financial plan if need. A quick Google search will yield some answers for you. If you don’t think you’ll need them, simple spreadsheets and money apps will work well.
- Educate yourself. I already mentioned it in the steps above, but it’s so critical. Read books, newspaper articles, financial magazines, etc. The more you know about finances, the better you can start to outline your plan and piece your goals/steps together.
- And lastly, ask for advice from a professional financial planner if you need help or you are feeling overwhelmed. If you want to go big right from the start with your financial plan, then certainly consult someone for help.