How to Create a Financial Plan in 8 Simple Steps
Creating a financial plan will provide you with peace of mind.
It will also help you achieve a secure and abundant financial future.
While it may seem daunting, with the proper guidance you can easily set your family up for success.
If you want true financial security, here’s how to create a financial plan in 8 simple steps.
Here’s what we'll cover in this post:
Quick Article Guide
Here’s what we'll cover in this post:
1. Review Your Budget
Before you begin creating a successful financial plan, you must understand where your money is going. If you don’t know what’s coming in and going out, how can you truly develop a structured plan?
Try carrying a notebook with you at all times. Every time you spend money, write down the amount and item you purchased. If you feel as though carrying around a notepad is too cumbersome, try using a budgeting or financial planning app. There are countless apps that help you watch your spending habits and categorize all of your purchases.
At the end of each week, spend some time reviewing all of your purchases and categorizing them. How much did you spend on food this week? How much did you spend on entertainment this week? By recording all of your purchases, you will see where your money is going.
Continue this exercise for at least four months. Review every week and at the end of every month. You will begin to see patterns in your spending habits. This exercise is simply designed to show you where your money is going so you can better budget and plan for the future.
2. Establish Short-Term and Long-Term Financial Goals
Where do you see yourself in the next 10, 20, or 30 years? When answering this question, be as specific as possible. The more details you can provide, the easier it will be for you to make a plan to achieve your goals.
For example, instead of saying, “I want to retire in 30 years”, say, “I want to pay off my mortgage and have $750,000 in my investment portfolio by the time I am 67-years-old.”
Set short-term and long-term goals. Short-term goals are goals you want to complete within a year, while long-term goals may take a little longer to complete. Your short-term goals will set you up for achieving your long-term goals.
Try to be realistic and extremely specific when setting your goals. You want to establish goals that are attainable and set you up for success. Your short-term and long-term goals will develop a road map for your financial plan.
3. Prioritize Purchasing Insurance
Insurance plays an important role in your financial plan. It helps protect you, your family, and your assets in case a disaster were to occur. For example, if you financially support your family, it’s imperative you purchase a life insurance policy. You want to prioritize their financial well-being if something were to ever happen to you.
Losing an income provider can put financial stress and create turmoil for the entire family. Life insurance can ensure your family will be supported in your absence.
Another form of insurance you should consider is disability insurance. You want to protect your income if you were to become severally injured or ill. Most employers will provide some form of disability insurance, but it may not be enough. Make sure to review your policy with your employer to determine if you need additional coverage.
4. Partner with a Financial Planner and a Tax Professional
Navigating the financial world can be confusing and intimidating; partnering with a financial planner can be a good solution. A financial planner can help you discover the best investments for your financial objectives as well as hold you accountable for reaching your financial goals.
They can be a great advocate for your financial well-being. They are experts in their field and are there to support you with your best interests in mind.
Another professional you will want to consider working with is a tax expert. The more your wealth grows, the more complicated your taxes become. Having a tax professional by your side can help you create a tax strategy that will save you money as well as maximize your investments.
Keep in mind, there are many financial professionals available. It’s important to vet your candidates before selecting someone to partner with. Ask your friends and family for referrals and take your time selecting the right professionals for your needs.
5. Start Saving
A recent retirement savings survey found that 36% of Americans had less than $10,000 saved for retirement. Many Americans will struggle financially in retirement because they didn’t prioritize saving. That’s why it’s important to start saving early.
A good rule of thumb is to save at least 20% of your income. Saving 20% of your income will help you save for your future and reach your savings goals faster. If you don’t have anything saved, you may want to start with an emergency fund of at least three to six months of your expenses. This amount will be a good buffer if you were to lose your job or need extra cash for an accident.
6. Build Your Portfolio
After you have established an emergency fund, you will want to balance your savings and financial goals. Your financial planner can help you determine where your additional savings should go.
For example, they may suggest you should contribute to your employer’s 401(k) program. Many employers have a match program for their 401(k). A match program rewards you for participating in the plan. They may match your contribution up to a certain amount. Let’s say they match up to a 6% contribution, then you may want to contribute 6% of your income in order to receive the entire match. This is a great way to build your retirement savings.
There are plenty of other options available for your retirement savings. Your financial planner and tax professional will help you select the best accounts for your financial needs.
7. Review Your Financial Plan Regularly and Make Adjustments
Life happens and things change. That’s why you should be adaptable. Your financial plan and goals will change over time.
So, review your financial plan monthly, quarterly, and annually. Reviewing your plan will help you see your progress and determine if you need to make any adjustments. Assessing your plan may even motivate you too ramp up your savings goals or up your contributions to your retirement accounts.
8. Establish an Exit Strategy
You will need an exit strategy for all of your financial goals. Let’s say you want to pay for your children’s college. How will you distribute the funds? Or maybe you want to purchase a rental property in 10 years and will need $20,000 for a down payment. You need a plan for distributing these funds as well.
Not only do you need an exit strategy for your goals but you need one for your retirement. Decide how and when you will retire and where you will receive your income.
You also need a plan for your heirs. Creating an estate will help put your family at ease and provide direction for your wishes upon your passing. Your financial planner and tax professional will help you establish a plan for your estate and the best way to minimize taxes.
The Bottom Line
Understanding how to create a financial plan can be simple if you follow these 8 steps. Financial planning doesn’t have to be complicated. Hire professional help to guide you and develop a financial plan that will help you achieve a secure financial future.
JRC Insurance Group is an independent life insurance agency that has helped thousands of families and business with their life insurance needs. Our agents offer at least 10 years of experience and work with 63 top-rated life insurance companies that offer a wide variety of plans for a wide variety of purposes, both individual and commercial.
Give us a call today at 855-247-9555 to learn more about your options for affordable life insurance, or enter your information in the form below to get a free instant life insurance quote online.
Personal Finance Writer
Ashley, both a published author and content creator, explores topics related to financial planning, wealth management, and insurance. Her articles have been featured in a range of publications, including Forbes and Yahoo! Finance.
Expert reviewed by:
Louis Lopes, CLU ChFC
Chartered Life Underwriter, Licensed Life and Health Agent
Louis has been in the insurance business for over 30 years. He specializes in “high risk” cases as well as more complex coverages for long term care, disability, and estate planning.