How to Make a Financial Plan

Women using digital tablet to check her finances at home office

Having a financial plan can be the key to achieving your money goals.  

Unfortunately, a survey from Schwab found that only about a third of Americans have a financial plan. In other words, most of us leave our future financial stability up to chance. 

Instead of hiding from the numbers or hoping for a winning lottery ticket, you can use these simple steps to create a financial plan and turn things around. Even if money is tight, having a financial plan can help you find areas for improvement and take steps toward your financial goals.  

What is financial planning? 

Financial planning involves reviewing your finances and making a plan to reach your goals. Your financial plan can include the steps you’ll take to pay off debt, save for a big purchase, retire and more. 

While you can work independently to create a financial plan, there is also a whole industry devoted to this aspect of money management.  

You can hire a Certified Financial Planner (CFP) or a Chartered Financial Analyst (CFA) to help you with tax planning, estate planning, wealth management and other financial needs—all for a fee, of course.  

Just beware that some professionals who call themselves financial planners are paid to sell specific insurance or investment products. Before taking investment advice from anyone, ensure they’ve a license and are registered with their state or the SEC. 

You can also meet with a certified, nonprofit credit counselor for help with things like budgeting, debt management and general financial advice. 

How to create a financial plan 

In the Schwab survey, the top reason people gave for not having a financial plan was not having enough money. But creating a plan can help you improve your finances, regardless of your starting point.  

Here’s a simple process anyone can follow to create a financial plan, even with a small budget: 

1. Write down your goals 

A financial plan is a roadmap that leads to a specific destination: your financial goals. But if you don’t know where you want to go, you can’t create a useful plan. 

Instead of just hoping your finances will improve, get specific about what you want. Write down timelines and dollar amounts to break down each goal and add it to your plan.  

Keep in mind that some financial problems can keep you from making progress, so we recommend putting these goals (in this order) at the top of your list: 

  • Pay off credit cards or other high-interest debt
  • Build an emergency savings fund equal to 3-6 months of your income. Start by saving just one month’s rent if your budget is tight
  • Make contributions to your retirement savings from each paycheck
  • Leave money or physical assets for loved ones

Even if you’re young, make sure to include your retirement goals. While retirement may seem too far away to consider, starting early means you’ll be better off down the line.  

2. Take inventory 

Some people hate the idea of budgeting, so it can be helpful to think of it as taking inventory of your finances. To start the inventory, list of all your monthly expenses and then compare it to your monthly income.  

The best way to make sure you don’t miss any expenses is to look at your most recent bank and credit card statements and digital wallet transactions.  

Then, add occasional expenses like holiday shopping, travel, vehicle maintenance, and any big purchases you’re planning. Add them to your list to ensure your income is enough to cover it all. If your car registration is $240 a year, for example, divide it by 12 and add $20 to your monthly list. 

3. Shake up your spending priorities 

Next, examine your budget and make adjustments that align with your goals.  

You may have to take money away from one spending category, such as dining out or clothes shopping, and allocate it toward another, such as retirement contributions, paying off debt or saving for a down payment. If you’re struggling to make the numbers work, try these tips: 

  • Cut some non-necessities temporarily to jump-start your progress
  • Start with the biggest expenses for the most impact. Consider how you can reduce, omit or delay the cost
  • Give yourself more cash to work with by looking for a higher-paying job or making a career change. Seek annual pay increases so your income keeps up with inflation

4. Make it automatic 

When you’ve determined where your money will go, try to automate as much as possible. For instance, you can set up automatic deposits to your savings and retirement accounts or increase the amount of your monthly payment that is automatically applied to your credit card. 

5. Harness the power of your surplus 

Put your surplus, or any extra money you have after covering expenses, to work.  

If your first goal is to pay off a credit card, for example, use your surplus to make extra payments toward your credit card debt each month. Once the debt is paid off, roll the rest toward the next goal on your list. 

If your income goes up or your expenses go down, don’t increase your spending. Instead, add the difference to your surplus to accelerate your progress toward the next goal. 

6. Consult with professionals 

Managing money can require you to be knowledgeable about credit, debt management, taxes and more. Yes, you can do it on your own with lots of research and time, but it doesn’t hurt to get a second opinion from a qualified professional. 

If you need free support, start by contacting a certified credit counselor. Consider working with a licensed financial advisor for help with tax, retirement, and estate planning. 

7. Track your progress 

A financial plan isn’t a one-and-done fix; it’s more like an action plan. If you don’t revisit it and make adjustments when your income and expenses change, it might not get you far. 

Instead of setting your plan aside, choose a recurring, monthly date when you’ll review your plan and track your progress. Then, add it to your calendar to make sure you keep it up.   

You can feel better about your finances 

The idea of taking a deep-dive into your finances might be stress-inducing. But according to the Schwab survey, people who have a financial plan feel better about their finances.  

Sure, no one wants to cut back on fun things like online shopping or dining out, but having a financial plan reminds you that you’re passing up temporary pleasures to build the life you really want. 

Frequently asked questions about financial planning

Why is financial planning important?  

Financial planning is important because it can help you reach your financial goals. Without a plan, you may never pay down debt, save for a home purchase or afford a dream vacation. But, a financial plan helps you prioritize your goals and improve your finances.  

What is a financial advisor?  

Financial advisor is a term that sometimes refers to a registered financial professional who offers advice on money management. Financial advisors aren’t the same as investment advisors and shouldn’t sell products for commission.   

What is the first step in financial planning?  

The first step in financial planning is defining your goals. Once you know what you want to achieve, whether it be paying off student loan debt or retiring early, you can start building a financial plan.  

Written by Sarah Brady | Edited by Rose Wheeler

Sarah Brady is a financial writer and speaker who’s written for Forbes Advisor, Investopedia, Experian and more. She is also a former Housing Counselor (HUD) and Certified Credit Counselor (NFCC).

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