Easy Steps to Create a Personal Financial Plan

by Josh Biggs in Tips on 25th April 2021

If you’ve decided that now is the time to create a solid financial plan for 2021, then you’re already winning part of the battle. Just recognizing that you need to take control of your finances is a big part of securing your future. 

While the concept of creating a financial plan and getting everything in order can feel overwhelming, in reality, if you take it step-by-step, it can be simple. 

The following are some of the steps to follow and key things to remember to include in your personal plan. 

Create a List of Goals and Things to Plan For

The first thing you should do to give yourself a general idea of what to include in your financial plan is sit down and figure out what your goals are and the specific areas you want to plan for. This will help guide your priorities. 

Some of the goals to consider including are:

  • A monthly budget
  • A plan for paying off debt
  • Saving an emergency fund
  • Starting a retirement savings account
  • Having an investment portfolio
  • Saving for a house down payment if you’re a renter
  • Saving for the more “fun” things you might want

When you’re setting financial goals for yourself, think about what you want to achieve in five years and then 10 and 20 years. 

Your personal goals are really going to drive your financial plan.

Go Over Your Income and Your Expenses

For a lot of people, the most challenging part of building a financial plan is going over your income and your expenses and then creating a budget accordingly. You may not want to face the reality of how much you’re spending, and it may be well over your income. 

While it’s hard, there’s no way to go forward with your plan if you don’t know your income versus your expenses. 

From there, you can start to build a specific budget. 

You’re going to have to look at ways you can increase your income, perhaps by diversifying your streams of revenue, and also how you can reduce your expenses. This is almost always something you’re going to find that you need to do. 

Debt Management

Once you have at least a basis for your budget, your financial plan should include a plan to tackle debt. 

Debt isn’t inherently bad. For example, a mortgage is considered a “good” debt. However, high-interest consumer debt is bad debt, and that’s what you should work toward paying off first. 

You’ll need to incorporate how you’ll pay off your debt in your budget. 

It should be a top priority because having a high amount of bad debt is going to make it hard for you to meet other financial goals in your plan. 

Save An Emergency Fund

Your financial plan will need to outline how you’re going to save an emergency fund if you don’t already have one. An emergency fund is one of the most important things you can have financially.

You shouldn’t start investing or saving for retirement until you have one. 

Your emergency fund should cover around six months of your expenses. Set it aside in an accessible, liquid account, but make it separate from the money you spend for day-to-day expenses so you aren’t tempted to dip into it. 

Build an Investment Plan

Once you have a plan for the essentials, you can start creating longer-term elements of your financial plan.

If you’ve never invested before, a good way to start can be a robo-investment platform. A robo-advisor uses an algorithm to help create a diversified investment account with your goals in mind. It gives you access to some of the elements of a financial planner at a fraction of the cost. 

If you have an employer-sponsored retirement plan like a 401(k), you’ll need to find out if your employer offers matching. You should also contribute as much as you can to your 401(k). 

You can continue to build on your retirement savings with a traditional or Roth IRA. These are tax-advantaged retirement savings accounts, and you can add up to $6,000 a year if you’re under the age of 50. 

Get Insurance

Having the right insurance is something that’s often overlooked by people who are creating a financial plan, but it’s a big part of the puzzle. You want to ensure you have adequate coverage, including health, disability, auto, life, and home or renters insurance. These are things that provide financial protection to you and your loved ones and help you avoid a catastrophic financial situation. 

Categories: Tips