Financial Plan

While many people talk about their finances, few have a financial plan. This article is simply titled “Financial Plan” and that is what it is about. The steps to create your own financial plan. There are also links to additional resource so that you can learn more about creating your own financial plan.

DIY Financial Plan, Personal Financial Plan

How To Create Your Own Financial Plan

So you feel like you want to get control of your finances but you don’t even know where to start. This article will help you accomplish your desire to have a financial plan. First let’s start with some basics.

What is a financial plan? The simplest way to state it is a financial plan is an overall evaluation of a person’s state of financial affairs, both present and future. The plan should look at the currently known variables and predict future cash flow, values of assets and a plan to withdraw those assets. Many times a budget will be used to help organize the person’s current finances and then create a series of steps or plan for the future. This plan should be working towards the goals set by the individual. Income must first be used to pay current expenses, develop savings and work toward both short and long term goals. Things such as risk management, estate taxes, college and retirement are examples of goals.


How To Create Your Financial Plan – Step 1 Set Your Goals

While this sounds simple, and in someways it is, it is really the most important part. You have to find some reason(s) to go through all of this effort and then stick to the plan. If not it will be easy to stray. You should think in terms of:

Short-Term Goals – Less Than One Year

Mid-Term Goals – Two To Five Years

Long-Term Goals – Greater Than Five Years

These goals should be realistic. For example if your goal is to buy a new car and pay cash then it is most likely a mid-term goal, unless you have already been saving towards that goal. Also it would be better, if possible, to make it a mid-term goal to buy a car and pay cash rather than a short-term goal and buy a car on credit. On the other hand, it would probably  be better to buy the car on credit as a mid-term goal than to make it a long-term goal an buy a car with cash. Other factors come into play, but you get the picture.

How To Create Your Financial Plan – Step 2 Determine Your Current Situation (Gathering Relevant Information)

You should sit down and look at your current income and how that income is being spent at this time.

Income – All wages, interest, dividends and gifts

Current Home Expenses – Mortgage or rent, Insurance, utilities, phone, cable, internet, furnishing and appliances, yard maintenance and any other home expenses.

Transportation Expense – Vehicle notes, auto insurance, fuel, fares, repairs, licenses and other.

Daily Expenses – Groceries, personal supplies, clothing, cleaning, education, eating out, barber or salon, pets and other.

Health Expenses – Health insurance, doctor visits, medicines, health club, life insurance, disability insurance and other.

Charity And Gift Expense – Gifts, charity, religious and other.

Entertainment Expense – Videos, music, games, movies, concerts, plays, books, hobbies, films, sports, recreation, vacation and other.

Savings – Emergency fund, retirement, investments, education and other

Credit And Obligatory Expense – Student loans, other loans, credit cards, alimony and child support, Federal taxes, State And Local taxes and other.

Subscription Expense – Newspaper, newsletters, magazines, dues, memberships and other.

Miscellaneous Expense – Bank fees, postage and other.

If you notice, each category has an other listed. This is because all dollars must be accounted for. While it doesn’t have to perfect, all of your income is going somewhere. It might be savings but it is going somewhere. If you aren’t sure put it in the other slot in the category that it most closely matches. You can change it later.

How To Create Your Financial Plan – Step 3 Analysis Of The Data

Now look at where you money is going. Are there things that you could either eliminate or cut back in order to reach any additional goals that are being funded? Some expenses are discretionary. Eating out doesn’t have to occur. You can bring a lunch to work or cook meals on the weekends that can be eaten as leftovers during the week. This might not be everyday or every night but it can free up dollars. Another options is additional sources of income. Is overtime available where you work? Can you take a part-time job? Are there ways to increase you value for your current employer? Can you start your own business? You have to determine the best route, increase income, reduce expenses or a combination of both.

How To Create Your Financial Plan – Step 4 Recommendation of Financial Plan

Once you determine the goals, then a plan should be put into place as to how will you work towards the goals on a monthly basis. So for example, if you want to purchase a car for $25,000 and pay cash. Simple math:

$25,000 / 36 months = $694.45 per month

$25,000 / 48 months = $520.84 per month

Which of these plans fit into your current budget? What percentage of your disposable income will this take up? This step might take some outside help unless you can be objective. If you can pretend that this information belongs to someone else and take the emotion out of it, it could be done on your own. If not seek the advice of a professional. Keep in mind that professionals have to be paid so there could be a cost. Still that cost could be minimal compared to failure.

How To Create Your Financial Plan – Step 5 Implementation of Financial Plan
Just do it! If you can setup some automatic mechanisms that will be best. Find ways to have money automatically put into places where you don’t see it. This will create a situation where you will almost forget about money going to savings that is for you goals. Out of sight out of mind is one way to look at it. However you don’t want to ignore things just put them aside for a period.
How To Create Your Financial Plan – Step 6 Monitor Your Financial Plan
Use the budget sheet on a monthly basis. Track your progress. Know where your dollars are going. Don’t be afraid to adjust. This is like planning a trip. If there is a roadblock you don’t just sit and wait. You see when you can reroute yourself and adjust the plan. Things will rarely if ever go exactly as planned. Don’t be afraid to adjust.

How To Create Your Financial Plan – Step 7 Repeat and Review

Each year you should repeat the process. See if the goals that you set are still as important. Are you on track for the ones that you set last time? Are there other goals that you would like to accomplish? This is your plan don’t become a prisoner to it but own it.

For some people this is enough. Others will need to educate themselves further. Some will have to seek more professional advice than others. That is just a part of life. It would be better to seek professional help early than to have to


Investopedia – What Is A Financial Plan

Huffington Post – Personal Planning – Do It Yourself Or Go With A Pro