How to Create a Financial Plan in 7 Easy Steps

personal financial planning

Dealing with your finances sometimes feels like untangling a big ball of yarn.

You know you should start pulling but have no idea where to begin.

If you’re not quite sure how to get started when it comes to financial planning, you’re not alone. Here are the steps you can take to gain control of your money today.

1. Perform a financial checkup

You wouldn’t start a new diet regimen without weighing yourself first. The same goes for money. Before you can improve your situation, you need to take stock of what you’ve got.

My favorite way is with Mint, an online platform on which you can access all your financial data. If you’d rather do it by hand, you can use a notebook.

Next, you’ll need to account for where your money is — and where it’s going. That means writing down balances for your student loans, bank accounts, credit cards, etc.

You also should track your spending for one month to get a clear picture of where your money’s going. Again, you can do it by hand, but Mint will automatically create a pretty pie chart for you.

2. Define your ‘why’

This step is often overlooked, but it’s vital. Why are you interested in better organizing your money? What’s your motivation for personal financial planning?

Maybe it’s so you can save up enough money to travel the world. Maybe it’s so you can retire early and spend more time with your family. Or maybe it’s so you can feel less stressed all the time.

Whatever your reason, write it down. Hopefully, it’ll inspire you when things get tough.

3. Outline your goals

Once you’ve defined your “why,” it’s time to outline your specific financial goals.

To get you started, here are three that should be at the top of your list:

  • Pay off high-interest debt: If you have high-interest consumer or student debt, aim to pay it off as quickly as possible.
  • Build an emergency fund: Don’t be like the 50 percent of Americans who couldn’t come up with $400 in an emergency. Try to build up three to six months of expenses so you’ll be prepared in case of job loss or illness.
  • Fund your retirement: Time is the most powerful tool when it comes to retirement investments. Most financial experts advise contributing enough to your 401(k) to get an employer match and then maxing out your Roth IRA. If you haven’t opened an IRA account yet, give Betterment a look.

In addition to those goals, you can list others, such as buying a house or funding your children’s college education. Although you’re welcome to create separate savings accounts for these goals, they should come after the three listed above.

4. Pay yourself first

Regular budgets don’t work very well. Tracking your spending and figuring out how every little expense fits into a box isn’t fun.

Instead, you should consider “paying yourself first.” Dedicate 10 to 20 percent of your gross income toward savings, with the majority going toward your retirement. Then set up an automatic withdrawal from your checking account to make sure contributions occur before life gets in the way.

The rest of the money can be spent however you want: on bills, new jeans, a night out, whatever. Since you’ve already paid yourself (and your future), you don’t need to worry about it.

5. Choose your allies

You can’t tackle the complicated topic of personal financial planning on your own — you have to build a team around you.

You could turn to budgeting apps or personal finance software or enlist the help of a certified financial planner (CFP). Search for a CFP who’s fee-only or try Wela or LearnVest — both of which offer one-time sessions with CFPs.

6. Prepare for the future

Once you have today’s finances under control, it’s time to start thinking about tomorrow.

Keep working toward your goals: paying down debt, saving for retirement, and maybe even opening a 529 plan for your children’s education.

And make sure your loved ones are taken care of in case anything ever happens to you. Write a DIY will, and if you have dependents, be sure to purchase a life insurance plan.

7. Continue your education

Congrats! You’ve begun your personal financial planning journey — but it’s not over yet.

Continue your financial education by reading books, signing up for newsletters, or listening to podcasts. Your financial education is the key to your financial health.

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