How to Make a Financial Plan

Financial planning is an ongoing process that reviews your current financial situation, sets meaningful goals, and creates a roadmap to achieve them. A personal financial plan is usually a document – physical or digital – that breaks down your goals into achievable steps and helps you make the most of your resources.

While financial plans should be individualized for your unique needs, most plans follow the same basic principles and elements.

The short answer? Now is always a good time to start. But certain life events often motivate people to create or revisit 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 impact shared finances, tax planning, and your goals.
• Approaching retirement: As you approach retirement, ensure your savings and investments align with your expected lifestyle and expenses.

Even if none of these apply to you right now, creating a financial plan can help you feel more confident and in control of your money.

If you’re ready to make a financial plan, here are eight steps to get you there.

1. Assess your current financial situation

The first step is to understand your current financial health. This includes your net worth – your assets minus your liabilities – and your cash flow. This baseline shows you exactly where you stand before you start planning.

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, a mortgage, or a car loan

Now, plug those numbers into the following equation:

Assets – liabilities = net worth

Now it’s time to determine your cash flow. Here’s what you need to write down:

• Your income: How much you receive each month from your paycheck and any investments or other income.
• Your expenses: How much you pay each month for basic living expenses, like rent or mortgage payments, utilities, credit cards, food, clothing, and transportation.

Listing these figures can help you determine how much discretionary income you have to put toward your goals – and where you could cut back to increase your savings.

2. Set your financial goals

Next, it’s time to set your goals. Ask yourself what you want your money to accomplish. Where do you see yourself in 10 years? What do you envision for retirement? Identifying and prioritizing your goals will motivate you as you plan your financial future.

When setting financial goals, it helps to make sure they’re SMART:

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

The SMART framework helps you stay focused and ensures your objectives are realistic and achievable.

3. Build a budget

A budget serves as the foundation of a financial plan – it connects your income to your goals and helps you track where your money goes each month.

One popular approach is the 50/30/20 rule, where you divide your after-tax income into three categories:

• 50% for needs: Housing, utilities, groceries, insurance, and minimum debt payments
• 30% for wants: Dining out, entertainment, hobbies, and subscriptions
• 20% for savings and debt repayment: Emergency fund contributions, retirement savings, and extra payments toward debt

This framework helps you balance enjoying life today while preparing for tomorrow. Adjust these percentages based on your situation to find what works for you.

Consider using budgeting apps to track your spending automatically and spot patterns.

4. Create an emergency fund

An emergency fund shields you from unexpected expenses like medical bills, car repairs, or job loss without derailing your financial goals or turning to high-interest debt.

To build an emergency fund, experts recommend saving 3 to 6 months’ worth of essential expenses, such as rent, utilities, groceries, and insurance premiums. Some experts even recommend saving 12 months’ worth of essential expenses, especially during economic uncertainty. But even $1,000 can act as a buffer against unexpected expenses.

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

5. Tackle high-interest debt

High-interest debt, like credit card balances, can quickly drain your finances and slow your progress toward your goals. Paying down your high-interest debt should be a top priority in any financial plan.

Start by listing all your debts and their interest rates. Focus on paying off the highest-interest debts first to minimize interest payments.

You could also consolidate your debt with lower-interest options, like personal loans. Stick to your budget to avoid accumulating new debt while you’re paying off the old.

6. Plan for retirement

Most financial plans cover retirement. You’ll need to determine how much you’ll need in retirement, then choose the best options to get there. Even small, consistent contributions can grow significantly over time. Here’s how to plan for your golden years:

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

These accounts often come with tax advantages. For example, with a 401(k), your contributions are made pre-tax, which lowers your taxable income and reduces the federal taxes you owe.

Review your retirement plan annually and increase your contributions as your income grows. Plan to contribute enough to get your employer’s match, if applicable, and then max out your retirement accounts before you look into other options.

7. Start investing for long-term goals

Saving keeps your money safe, but investing puts it to work through compound growth – where your earnings can generate their own gains over time.

If you’re ready to start investing, a financial advisor or robo-advisor can help. Focus on building a balanced portfolio rather than chasing short-term gains. Diversifying your portfolio across asset classes, like stocks, bonds, and cash equivalents, can lower your overall risk.

Make sure you tailor your investment plan to your financial goals and risk tolerance, then automate monthly contributions to ETFs or mutual funds. Even small amounts invested regularly can add up significantly over time.

8. Review and adjust your plan regularly

Life circumstances and financial goals evolve over time, so your plan must adapt as they change.

Review your plan at least once a year and after major life events, like getting married, having children, or changing jobs. Track your progress and adjust your budget, savings, and investment strategies as needed.

Many people can create and maintain a solid financial plan on their own. If you’re focusing on everyday goals, like budgeting and building an emergency fund, you can use helpful tools and apps to track spending and automate savings.

Consider working with a financial professional if you have a complex tax situation, manage significant assets, or need help with estate planning and major life changes.

You have a few options:

• Fee-only advisors: These professionals charge a flat fee rather than a commission.
• Commission-based advisors: These professionals earn money when you buy certain financial products.
• Robo-advisors: These platforms use automated technology from financial experts to manage your investments and keep costs low

Whether you choose to build your plan yourself or work with a pro, the most important thing is taking that first step.

Financial planning isn’t just about securing your future – it’s about taking control of your money today. Remember, any step forward is progress, so start where you are and keep building from there.

For more tips to help you manage your money, check out our guide on how to budget effectively.