Financial Planning
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How to Make a Financial Plan and Achieve your Life Goals?

Everyone has objectives in life. Things like buying a house, completing a college degree, planning a marriage, or starting a business keep us motivated. But frequently, monetary problems sneak in.

These financial constraints stop us from achieving our goals. We’re left wishing we had some financial plan to cover life’s uncertainties. This way, we could still work towards our objectives. 

This article will discuss everything you need to know about financial plans. We will also share our step-by-step process to help you create your own personal financial plan. So, without further ado, let’s begin. 

What is a Financial Plan?

Financial Planning

At its very core, a financial plan is just that – a plan for finances. It helps you meet your current needs and provides a way to achieve your future objectives. It analyzes your finances, such as assets, earnings, and liabilities.

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A financial plan provides a comprehensive picture of your short-term financial goals long term financial goals and outlines strategies to achieve them.

It takes into consideration your existing financial standing. On the basis of your current situation, it proposes an in-depth strategy to achieve your future objectives. It tells you exactly where to spend your money, where to cut your finances and how to save your money if you want to achieve a particular objective.

That’s why a financial plan can stretch over weeks, months, or years, depending on the completion time of your goals. 

What’s more, a financial plan helps you prepare for the worst. It enables you to set money aside for the uncertainties of life. Whether it’s an unexpected job loss, a catastrophic natural calamity, economic recess, or an unfortunate health issue, you can rely on a financial plan to cover your expenses.

Essentially, it lets you take control of your finances. You can then achieve your objectives and ward away any worries about yourself, your family, or your business. 

While people used to hire professionals to create a financial plan, you don’t need that anymore. Thanks to advancements in tech, you can easily create your own.

We will discuss some of the popular mobile apps that can help you make a financial plan later in the article. First, let’s look at a step-by-step process of creating a financial plan. 

How to Create a Financial Plan in Easy Steps

steps on financial planning

The problem with many people is they don’t know where to start. They keep worrying about how to budget money for beginners, set financial goals, how much it costs, whether it is too late, and similar pesky details.

They assume a financial plan needs endless professional support involving complex financial concepts. WRONG! 

Creating a financial plan isn’t as complex as you think. Below are the key components of financial planning and our step-by-step guide to set you on the right path. 

Step 1: Review your Current Financial Standing

Before you start planning, you need to know your financial standing. What is your current financial situation at the moment? A written cash flow plan also helps. It’s surprising how many of us never look at our bank statements. In reality, everyone can benefit tremendously from having more frequent financial checkups. 

Alright, let’s get candid – when was the last time you checked all of your bills and figured out the total expenses? Get your bank statements and highlight every significant expense.

It’s also helpful to categorize all of your costs into personal expenses, necessary expenses, optional, family expenses, etc. Once all the costs are in front of you, answer the following questions: 

  • Where can I cut down on my personal or family expenses? 
  • Do I really need my optional expenses?
  • Can I save on my necessary expenses by switching to a different subscription?

Step 2: Set Goals 

The next step is to set short-term and long-term financial goals. This is the start of your financial freedom, as setting goals gives you direction. It helps you understand where you are going. It clarifies whether you’re going in the right direction to achieve your goals.

Preferably, your financial goals should be S.M.A.R.T. It means your goals should be Specific, Measurable, Attainable, Relevant & Time-Bound. 

Write down a formal statement that elucidates everything you want to accomplish to set a clear objective. For instance, a short-term goal can be, “I want to have $5000 in my savings by the end of December”.

Likewise, a short-term financial plan can be, “I will put $50 in my savings this month”. Short-term goals provide a motivation boost by showing consistent progress. On the other hand, long-term goals provide a more consistent direction. 

Step 3: Create your Debt Plan

While no one likes to think about debts, it’s one issue you cannot ignore. There’s no way you can make progress with your goals if your debts are weighing your finances down. You have to figure out how to repay what you owe first – whether it’s a mortgage, student loan, interest, or other repayments. 

To start with, note down your most problematic debts and how you plan on getting rid of them. Problematic debts are those that cost more because of excessive interest rates. You need to get rid of these debts as soon as possible in your financial independence journey. 

Instead of struggling with several debts all at once, sometimes it’s easy to consolidate everything into one, i.e., a cheaper loan. Research and consider this option if possible. To conclude, you have to start taking concrete action and working towards becoming debt-free. 

Step 4: Establish an Emergency Fund

An emergency fund is your financial safety & protection net. It’s a buffer that keeps you afloat in some desperate times of need. It doesn’t matter how ready you are for an emergency. Some unexpected costs will always come and eat up your finances. Emergency funds safeguard you against such sudden bills. 

The exact amount of your emergency fund depends on you. Your emergency fund should cover about 3 to 6 months’ worth of expenses as a rule of thumb. You can also keep some money aside for variable expenses like food, clothing, entertainment, etc. 

Emergency funds are valuable for everyone. This is mainly if you are someone with a variable income, such as a Freelancer or a poor credit score. In such situations, an emergency fund can hold you back without relying on high-interest loans or credit cards. 

Step 5: Create Your Estate Plan

Most people ignore estate planning. Contrary to popular belief, it doesn’t just apply to wealthy people or people approaching retirement age. Everyone needs estate planning. It helps protect your family in case you are not around. Thus, estate planning gives you complete peace of mind. 

While creating your estate plan, including the following: 

  • Your last will and testament deed
  • Any healthcare directives 
  • Your power of attorney
  • Your trust information 
  • Your disposition instructions 
  • Guardianship nominations 

Step 6: Build your Net Worth

The next step is to invest in your future and build your net worth. You can start by focusing on improving your savings and making investments. Everyone has different long and short-term plans.

For instance, your short-term goal may be to cover all the steps you’re taking to build your net worth. Similarly, your long-term plan may focus on things like purchasing a house. 

Retirement planning is an excellent way to ensure that you are ready for the future. Consider the following variables to plan for retirement:

Retirement age – At what age would you like to retire? 

Lifestyle – What lifestyle do you want once you retire?

Health – Do you have any chronic health problems? If you have any current health issues, ensure you’re ready to tackle them in the future. 

Savings – How much money can you save on a regular basis? 

Step 7: Get some Insurance

Like an emergency fund, insurance protects your assets from unpredictable situations and risks. When you have the right insurance, you don’t have to constantly worry about dipping into your savings every time you need extra cash. You can then stay on top of your saving objectives – no matter the situation. 

For example, you get protection from natural calamities, break-ins, and other similar disasters if you have home insurance. Likewise, you’re ready to fix any unexpected issues without any big payments if you have car insurance. Therefore, make a list of insurances you need while making your financial plan. 

Step 8: Monitor Your Financial Plan

The final step is to monitor how well your financial strategies are coming along. Check in every few months to ensure you are moving in the right direction. A person’s financial situation can change in just a few days.

Therefore, don’t forget to update your plan when a significant event occurs in your life. This important event can be getting married, having a child, purchasing a new car/house, etc. These changes will create new considerations that will change your financial plan. Actively reviewing your plan ensures you can have a foolproof strategy to achieve your objectives. 

Financial Planning Mobile Apps

management apps

Below are some budgeting apps that can help you keep track of your finances: 

  • Mint
  • Pocketnest
  • Money Manager
  • Personal Capital
  • Y.N.A.B.

Final Thoughts

The overall objective of financial planning is to make you more confident about your finances. The more you know about your financials and goals, the more you can be careful about spending. Whether you want to retire by 50 or start a side hustle, a financial plan can help you achieve your purpose.

It doesn’t matter what’s your current financial standing. If you create a financial plan today, you can start working towards achieving your life goals and financial stability. Good luck!

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