Financial freedom and happiness – that’s the goal, right?
You would be hard pushed to find someone who didn’t want the above, and we believe that it’s something that we should all be aiming for.
But have you ever heard the phrase “a dream without a plan is just a wish”?
It’s all well and good wanting to have your life look a certain way, but you need a plan.
A solid financial plan will help you get to creating a secure future for you and your family.
Let’s dive in on creating a bulletproof financial plan!
Table of Contents
What is a Financial Plan?
Are you wondering “what does a financial plan look like”?
A financial plan is a document on which is written out a detailed list of how you are going to achieve your goals.
It’s important to plan for the future and also have set goals in mind because otherwise time will pass and you won’t have moved any further forward.
You can think of it as a roadmap to get you from where you are now, to where you want to be financially.
Why a Financial Plan is Important
There is an importance of financial planning because it will help you see clearly what you need to do in order to reach your goals.
It’s especially important if you are doing this as a couple because you need to make sure that you’re on the same page.
It’s really easy to get caught up in day-to-day challenges and not change anything.
A good financial plan will show you what you need to do on a day to day basis to reach your goals.
Understanding The Financial Plan
There are certain things that you will want to include in your financial plan to give you maximum success.
These are:
Net Worth
Net worth is how much you are deemed to be worth judging by your assets.
The way to calculate your net worth is to:
- List your assets (the things that you own, e.g. cash, investments, car, etc)
- List any liabilities (things that you owe money on e.g. car payments, mortgage, debt)
- Subtract your liabilities from your assets and that will give you your net worth number
Calculating your net worth is a good way to see where you stand financially at the start of your financial planning.
Cash Flow
Cash flow is the money that you have coming in and out. This will help you to see an overall picture of what your money is doing.
- List out all of your income sources
- List out how much you are spending each month
Putting together a budget is really important in a good financial plan. We recommend looking at Personal Capital or Mint to help you with this.
Your Priorities & Goals
The financial plan that you create will be personal to you and your family.
You will want to work as a team to decide on the priorities and goals that you have together.
Only by working as a team will you reach these financial goals.
9 Steps to a Solid, Successful Financial Plan
You can create your own financial plan in just a few simple steps. It’s easy enough to do financial planning for beginners. But what’s the process of financial planning?
Let’s take a look at the financial planning steps:
1. Define your financial goals and priorities
The most important place to start with putting together your financial plan is to define what your goals are.
Start with looking at your short term goals and then at your long term goals.
You could write down your goals for 5 years time, 10 years, 15 years, and so on.
It may feel a little strange at first to imagine what life will be like so far into the future, but it will help you out to do this.
It’s also very exciting to work on plans for the future you!
If you are doing this as a couple then make sure you sit down together and do this step as a pair so you can make sure you’re on the same page.
What is important to you right now, and what’s going to be important for the future?
2. Create an emergency fund
Creating an emergency fund needs to be one of the first things that you do for your financial plan.
An emergency fund is a fund of money that you have saved for emergencies.
Things like birthdays or holidays don’t count as emergencies as these are things that you can plan for easily.
Emergencies are classed as those expenses that you can’t plan for. This could be your oven breaking down or a funeral.
The amount that you keep in your emergency fund will depend on what makes you feel comfortable, but $1000 is a good place to start.
When you are planning your financial journey you don’t want anything that goes wrong to stop you from getting to where you want to be.
3. Pay off your debt
Paying off your debt needs to be a high priority when it comes to planning your best financial future.
Debt is money that has been spent in the past, so planning for your future can be hindered by this.
Not only that, but the high-interest debt will be eating into the money that you earn at a fast rate.
Paying off your debt quicker will mean that you spend less on interest over time and therefore have more money in your pocket. It’s time to create a financial plan to pay off debt.
There are 2 main methods that are widely recommended to do:
- Debt snowball – this is where you throw your money at the smallest debt first (whilst still paying the minimum balances on the others)
- Debt avalanche – this is where you start with the debt with the highest interest rate first
The debt snowball is cited as the best debt payment method for the most psychological benefits and the debt avalanche for saving the most interest in total.
Once your debt is paid off you will have more income each month to put towards your goals.
4. Create an investment plan
If you aren’t yet investing, you need to be! A lot of people think that you need to be wealthy already to invest but that isn’t the case.
When you have long term financial goals you should definitely look into investing.
Already an investor? Make sure that you check in on your portfolio and also check that you are with the best company in terms of returns and fees.
The sooner you start investing the better, thanks to the power of compound interest.
Your money will keep growing and growing without you having to do anything.
Some investment platforms that we recommend include:
5. Get the insurance you need
Although we don’t like to think that bad things will happen, it’s best to be prepared just in case.
Part of being prepared for a worst-case scenario is making sure you have the right insurance.
Everyone should have health insurance at the very least, with things like life insurance, home insurance and vehicle insurance too.
Check with your insurance companies that all of your information is still correct and you have the right amount of coverage.
We’ve recently done a review on Haven Life insurance with our personal experience.
6. Plan for retirement
It may feel like retirement is a long time away but the sooner you start planning for it the better.
You need to make sure that you are paying into a 401(k) or an IRA. Speak to a financial advisor to find out which options are the best for you.
Try and put as much as you can into this and factor it into your budget.
7. Plan for taxes
Not all parts of your financial plan are going to be the most interesting things ever – and taxes certainly won’t be!
Even though they aren’t very exciting, taxes are a necessary part of our finances and we need to be prepared for them.
Make sure you check your taxes are correct and go through an accountant.
8. Have an estate plan
An estate plan is a plan that you have for your assets when you are no longer here.
As discussed in the insurance section, you will want to make sure that you include life insurance in this estate plan.
Leading on from life insurance you will want to put together a will. This makes sure that your finances go where you want them to.
Another thing to check is that your beneficiaries are up to date on things like your retirement accounts where you can choose who they go to.
Something else that you could add to your estate plan is an advanced healthcare directive and assign power of attorney for your estate.
9. Review your plan frequently and don’t lose focus
When you first get started on your financial plan it will probably feel really exciting to plan out a happy financial future.
As time passes you may find that your initial excitement fizzles out a bit. It’s important to not lose focus.
Be sure to review your financial plan frequently to check that you are still on track and to see if you need to make any changes.
Tips For A Successful Financial Future
We hope that you have the most successful financial future ever and that these tips will help you to get there.
There are some more tips that we would like to cover to help you on this journey:
1. Review your plan frequently
How are you going to know if your plan is on track if you aren’t checking in on it?
You could have frequent meetings with your partner so that you can both discuss your progress and support each other.
There may be things that need to be changed or added to your plan as things change.
You may decide that you want to get more aggressive with your savings and this will, therefore, require some tweaking.
2. Keep an eye on your credit score
Something else that you can keep track of is your credit score. Checking in on your credit score will make sure everything looks ok there.
Keeping an eye on your credit score can also help to flag any errors or even fraud that you may not have otherwise known about.
Your credit score is important if you need credit in the future such as for buying a house or business needs.
Use Credit Karma to truly understand your credit score.
There are lots of great personal financial planning software that you can use to reach your goals.
3. Keep looking for ways to save money
This isn’t a ‘set it and forget it’ plan – you will need to keep on trying to work hard towards your goals.
Keep looking for ways to save money on your everyday expenses as it will mean that you have more to put towards your future goals.
It doesn’t mean that you have to lead an austere life in order to complete your personal financial plan.
There are ways that you can save money without having to cut back. But maybe you will want to cut back occasionally so that you reach a certain goal faster.
Look through all of your expenses and see where you can get them cheaper or get rid of them altogether.
We recommend using services such as Trim to cut down on your bills with little effort on your part.
4. Have a “plan B” for the future
As much as we’d like to think that we now have everything planned out for the future, we can’t predict what’s going to happen.
It’s always important to have a backup plan just in case anything goes wrong or off track.
Speak to your partner or loved ones to think about how to put together a plan B for the future.
Maybe you want to include more passive income streams instead of assuming that you will keep your job.
You can still have a positive and optimistic outlook but be prepared for the future.
When to Hire a Professional Financial Planner
Should you hire a professional financial planner? There are certain parts of your personal financial planning basics that you may want more help with.
For example, if you have a large family and a complicated estate plan then you may want support with this.
As we’ve discussed in this article, it’s easy to put together a financial plan by yourself – and much cheaper!
The best time to hire a professional financial planner is if you feel that you need further guidance. Perhaps you have a large sum of money and you’re unsure what to do.
Final Thoughts On Your Financial Plan
Creating your financial plan should be fun and exciting! Make it a special thing with your partner and grab some nice food whilst you’re doing it.
We like to assume that the future will be fine and that we will live forever. Unfortunately, that’s not the case and we need to be prepared.
I don’t know about you, but I want to make sure that my loved ones are going to be ok once I’m gone. This is a responsible thing to do.
Try and see how it goes, putting together your financial plan yourself, and if you need additional help call in a financial planner.
Use this article as a financial plan template for step by step financial planning by yourself.
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