How to Make a Financial Plan

“Financial planning” is an ongoing process to review current financial needs and progress toward your long-term goals.

A personal financial plan is usually a document, physical or digital, that breaks down your financial goals into achievable steps. It provides insights into your finances and helps you make the most of your resources.

While financial plans should be individualized for your personal needs and goals, all financial plans follow the same basic elements and principles.

A financial plan will generally include these nine key steps:

1. Determine your financial goals

The first thing you should ask yourself when putting together a financial plan is what you want your money to accomplish.

What are your short and long-term needs? Where do you see yourself in 10 years? What do you envision for your life in retirement? Identifying and prioritizing your goals will motivate you as you plan out your financial future.

When setting financial goals, there are a few rules to follow. For example, it helps to make sure your goals are SMART:²

• Specific
• Measurable
• Achievable
• Relevant
• Time-bound

SMART goals help you stay focused and ensure your goals are realistic and achievable.

2. Set a base for your current financial situation

Financial planning for beginners often starts with understanding your current financial health, including your net worth (how much you have in assets minus your total liabilities) and your cash flow.

To calculate your net worth, list the following:

• Your assets: This may include a home and a car, some cash in the bank, money invested in a 401(k) plan, and anything else you own of value.
• Your liabilities: These may include credit card debt, student loans, an outstanding mortgage, and a car loan.

To get a sense of your cash flow, list all of the following:

• Your income: Includes your paycheck and any investments and money you have coming in, month-to-month.
• Your expenses: Write down how much you’ve paid over a year in basic living expenses (i.e., rent or mortgage payments, utilities, credit cards, etc.) and document your day-to-day spending on things like food, clothing, and transportation, as well as any extra expenditures on things like travel, entertainment, and dining out. Add up all these numbers for a year and then divide by 12, to get an average monthly estimate of your spending.

3. Budget for emergencies

An emergency fund shields you from unexpected expenses like medical bills, car repairs, or job loss. Without one, you risk resorting to high-interest debt or disrupting your financial goals.

To build an emergency fund, save 3-6 months’ worth of essential expenses. These expenses include rent or mortgage payments, utilities, groceries, and insurance premiums.

Keep your emergency fund accessible, like in a high-yield savings account, and avoid using it for non-emergencies. Review your emergency fund regularly and adjust it as your expenses change.

4. Tackle high-interest debt

High-interest debt, like credit card balances, can quickly drain your finances and slow your progress toward your financial goals. Tackling this debt should be a top priority for a financial plan.

Start by listing all your debts and their corresponding interest rates. Focus on paying off the highest-interest debts first (following the debt avalanche method) to minimize interest payments.

Consider consolidating debt with lower-interest options, like personal loans. Avoid accumulating new debt by following a budget and prioritizing your essential expenses over unnecessary spending.

5. Plan for retirement

Planning for retirement is essential for a comfortable and financially stable life after your working years. Even small contributions made consistently over time can grow significantly thanks to compound interest. Start by:

• Estimating your retirement needs based on your desired lifestyle and projected expenses.
• Contributing to employer-sponsored plans like a 401(k) or similar retirement accounts, especially if your employer offers matching contributions.
• Exploring Individual Retirement Accounts (IRAs) to diversify your retirement savings.

Review your retirement plan annually and increase your contributions as your income grows. The earlier you start saving, the more time your money has to grow.

6. Get into investing

To start investing, diversify your investments across asset classes like stocks and bonds. Create an investment plan tailored to your financial goals and risk tolerance, and consider automating your investing by setting up monthly contributions into ETFs or mutual funds.

Investing is a long-term game, so focus on building a balanced portfolio that aligns with your financial objectives rather than chasing short-term gains.

7. Consider a tax strategy

Taxes can significantly impact your financial plan, so having a solid tax strategy is also helpful. Tax-efficient planning helps you keep more of your money and grow your wealth faster.

Start by identifying tax-advantaged accounts like 401(k)s, IRAs, or Health Savings Accounts (HSAs). Review your annual tax returns with a financial advisor or tax professional to maximize your deductions and credits.

When making investments, consider the tax implications of your decisions. For example, holding assets in tax-deferred or tax-exempt accounts can reduce your tax burden over time, increasing the amount of money you’ll have at your disposal.

8. Start estate planning

Estate planning makes sure your assets go where you want and spares your loved ones from added stress. Here are a few steps to get started with estate planning:

• Begin by drafting a will that clearly outlines how you want your assets handled.
• Identify beneficiaries for retirement accounts, insurance policies, and your other assets.
• Consider establishing a trust to protect your assets and minimize estate taxes.

Regularly review and update your estate plan to reflect life changes like getting married or having children.

9. Monitor and adjust your plan

Financial planning is not a one-time activity — it requires regular monitoring and adjustments to remain effective. Life circumstances and financial goals evolve over time, so your plan must adapt.

As with your estate plan, you should also review your overall financial plan at least once a year and after major life events like getting married, having children, and changing jobs.

Track your progress against your goals and make changes to your budget, savings, and investment strategies as needed.

By staying flexible and proactive, you ensure that your financial plan will continue to support your long-term success.

Saving for your future is key to financial security and long-term wealth. It helps you handle unexpected expenses and work toward major financial goals like buying a home or retiring comfortably. Here are a few other reasons savings are essential:

• Without savings, recovering from setbacks and planning for the future becomes much harder.
• Savings grow through investments and compound interest, where returns build over time — even with small, regular contributions.
• Savings give you peace of mind and put you in control of your financial choices.
• Savings allow you to make choices based on what’s best for your goals rather than feeling pressured by immediate financial constraints.

Savings allow you to shape your future on your own terms, whether by funding further education, taking time off work, or pursuing a passion project.

Certain life events will motivate you to create or revisit a financial plan, as these moments bring significant changes to your priorities. Here are some key times to consider creating or updating a financial plan:

• Income changes: Getting a raise, starting a new job, or losing your job are critical moments to reassess your finances and adjust your goals.
• Starting a family: Having children or planning for their future education requires budgeting for additional expenses and long-term savings strategies.
• Marriage or divorce: Significant relationship changes, like marriage or divorce, impact shared finances, tax planning, and your goals.
• Approaching retirement: As retirement nears, you’ll want to ensure your savings and investments align with your expected lifestyle and expenses.

Why financial planning is your roadmap to success

A solid financial plan is the foundation for achieving your financial goals and building long-term stability. Setting clear objectives and managing your money wisely can create a roadmap to financial success.

Financial planning isn’t just about today — it’s also about securing your future. For more financial planning tips to help you take control of your money, check out our guide on how to budget effectively.