How to Put Together a Financial Plan

Published on October 2, 2020 by Daniel Azzoli

Savings tracker for a financial plan.

You probably already know that your financial well-being is important – very important in fact. But understanding its importance and knowing how to keep this part of your life in a healthy state are two different things.

Like with many things in life, if you want to do something properly, you’re going to need a plan. Your finances are no exception. Putting a well-functioning financial plan in place can have all sorts of positive effects on your financial profile. It can help you save your money, meet your long-term goals, and have the lifestyle you want.

But as helpful as a plan can be, following through on the guidelines you’ve set out is no walk in the park. Getting your finances to a healthy place takes time and effort, and you’ll need a personalized financial plan that’s suited to your particular situation. As tough as it may be, remember that it’s a path worth traveling! Today, we’re going to look at some of the steps involved with financial planning to help you get started on the right foot.

What is a Financial Plan?

Before we dive into the specifics, we should go over what a financial plan is at its core. In essence, it’s a set of exercises and guidelines that you set out to stabilize your financial standing in the present, and to help it improve for the future. This isn’t a one-time task that you do once and forget about. It’s an ongoing process that takes patience and adaptability.

If done well, it can help you to achieve your long-term financial goals and keep your finances stable. And remember, this isn’t something that’s solely reserved for people who have money to manage, or conversely, people on the other end of the spectrum. It’s something that may help virtually everyone in some form or another.

6 Steps to Create a Financial Plan

Now that we’ve defined the concept of a financial plan, let’s look at some of the steps involved in putting one together. Like we mentioned earlier, no two plans will look the same, and everyone is going to have to gear theirs to their own situation. When going through these steps, consider how they apply to you and fit into your life.

1. Write Down Your Financial Goals

The first step on this journey is to lay your goals out in clear and concise terms. This means that they shouldn’t be loose ideas floating around in your head; you’ll need to put pen to paper (or fingers to keyboard) and point your efforts at something tangible.

It’s okay to start this exercise in relatively broad terms. Ask yourself where you want to be in the next five, ten, twenty years. What will it take to get there? A house? A car? The money for early retirement?

Person writing down notes for their financial plan.

Make a list of these goals and try to assign a dollar value to them. For example, maybe you need $50,000 for a down payment on a house and you want to have this money set aside in five years. This means you’ll need to save $10,000 per year over that period of time. But don’t stop there. Break this down as far as you can take it. If you need to save $10,000 a year, that means you’ll need to save about $833 a month, which is a little over $200 a week. The further you break these goals down, the easier of a time you may have finding ways to make adjustments in order to hit your savings goals.

2. Plan for Emergencies

As well thought out as your financial plan may be, life has a way of throwing a wrench into your plans when you least expect it. These can often come in the form of costly unplanned emergencies. Your job is to make sure you’re prepared to handle them when the time comes.

Your first line of defense in these situations should be your emergency fund. While your ultimate goal may be to save around six months’ worth of living expenses, you don’t have to hit that number overnight.[1] Put aside whatever money you can spare at the end of each month and designate it for your emergency savings. Even an extra $400 dollars can help you handle things like a flat tire or an unexpected home repair.

If you do run into an emergency expense and you don’t have the savings to cover it, you may want to consider applying for a personal line of credit. They may be a useful last resort to help you handle emergency costs when your savings won’t cut it. Just remember, these loans are meant to be used for emergencies only.

3. Make Debt Repayment a Part of Your Financial Plan

Another thing that can hold you back from hitting your future goals is a cloud of debt hanging over your head. Before you start working towards your savings goals, you may want to start tackling some of the debt that’s taking money out of your pocket.

There are different strategies for paying off debt, so you’ll have to do your research and assess your own situation to find the best fit. Maybe you want to focus on paying off your highest interest debt first, or maybe you want to get rid of the low hanging fruit and go after your accounts with the lowest balance. Both systems have their pros and cons, so do your best to figure out what works for your situation.

4. Save Your Money

Once you have a plan in place to take care of some (if not all) of your debt and have some funds saved up for emergencies, it’s time to start working towards some of the larger savings goals in your financial plan. Dive into your budget and look for ways to a) cut down on some of your expenses, and b) increase your income.

Look at your budget and try to identify where your spending might be a little overboard. Are you going out for dinner too much? Do you have an excessive amount of subscription services slowly siphoning money from your wallet?

Saving money in your piggy bank as part of your financial pan.

Look for ways to cut back on some of these things where possible, but don’t feel like you have to eliminate all the fun things in your life. Try to find a healthy balance between fiscal responsibility and entertainment.

Increasing your income may seem like a bit more of a challenge, but that doesn’t mean it’s impossible. You might be able to start working on a side hustle, get a raise or promotion at work, or even take on an extra job if you have the time for it. Just be sure to put any extra money you make primarily towards your savings goals.

5. Invest Your Money

If you want to hit long-term financial goals, it helps to have your money do some of the heavy lifting for you. To do this, you’ll need to start investing it. Just make sure that before you start this process, you have a clear idea of what goals you’re aiming at. This can help you determine how risky or conservative you want your investments to be.

In general, investing your money is supposed to be a long-term venture, so it helps to start early if you want to maximize your money’s growth potential. If you’re worried about needing money sooner rather than later, investment accounts aren’t an ideal place to put money designated for emergencies or short-term use. This should typically go into a savings account.

You may also want to get a better understanding of the types of things you’ll be investing your money in, like real estate, the stock market, or even your retirement fund. If you do plan on investing your money, make this a part of your regular budget to make sure you’re moving steadily towards your investment goals.

6. Frequently Review Your Financial Plan

The only way you’re going to have any idea of whether your financial plan is on track or not is if you review your progress frequently. Like we mentioned earlier, setting your plans in motion is only the start of the process. In order for this to be a successful venture, you’re going to need to make tweaks and adjustments throughout the process. When you do check in on your progress, ask yourself questions like:

  • Do you still have the same goals as you started out with?
  • Have you made progress on paying off your debt?
  • Has your income gone up or down?
  • Have any emergencies changed your financial outlook?
  • Have your investments been successful or not?
Someone doing research on their tablet for their financial plan.

Depending on the answers to some of these questions, you may want to make adjustments to your timeline and your goals. Just make sure you don’t make any changes without considering all of the potential consequences.

Stay the Course

The process of putting together a financial plan won’t be easy, and actually executing it will take some work. You may run up against some hurdles, and it won’t always be fun to be so regimented with your spending. But this doesn’t mean that it’s impossible. If you have a thorough plan in place and you do your best to stick to your budget, the eventual payoff can be worth it.

And remember, if you make any mistakes along the way, don’t beat yourself up. It’s a long road, and you’re bound to stumble occasionally. Just do your best not to get too discouraged and stick to the plan you’ve set out. Always remind yourself why you’re doing what you’re doing, and hopefully you’ll find success!

Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see CreditFresh’s Terms of Use.


[1] https://www.thebalance.com/how-much-should-i-have-in-my-emergency-fund-2388353