By Lara Adams / Updated: Jul 18, 2019

Financial Planning Basics: A 5 Step Guide {To Pin on Your Fridge}

5 Easy Steps to Financial PlanningDo you have a financial plan for your life? If you are like 40% of the Americans, the answer may be “no.” If that is the case, putting together a financial plan is one of the first steps you need to make to take control of your financial life.


What is Financial Planning?

Financial planning means coming up with a specific, concrete, realistic plan for your financial present and future. Within your financial plan, you will address topics which include:

  • Your monthly budget.
  • Your financial goals.
  • Your plans for retirement.
  • Your investments.
  • How you will pay off your debts.
  • How you will increase your income.
  • Any other financial considerations which impact your life.

Why is Financial Planning Important?

If you do not take the time to create a written financial plan for your life, you are relying on intuition and estimation to guide you toward achieving your financial goals. It is easy to estimate incorrectly whether you are moving toward your goals or not.

With a written financial plan, you give yourself a concrete roadmap toward your destination. This allows you to check your location on that map and whether your current budgeting decisions are moving you forward.

What are the Steps of Successful Financial Planning?

If you are ready to create your first financial plan, the steps below can help you get started.

1. First, Establish Your Goals

You cannot plot a course to a destination if you do not know where you are trying to go. Where is it you want to be in five years? What about 10 years? What about 40?

  • Do you have kids, or plan to have kids? How many?
  • Will you pay for your children education?
  • How long do you plan to work? At what age do you want to retire?
  • Where do you live now? Where do you want to live during retirement, and in what type of residence?
  • What personal goals do you want to achieve, which might cost money (i.e., personal projects)?

Those are just some sample questions. You probably will come up with more.

2. Do the Math and Define a Budget

Once you know what you want to achieve, your next step is to do some math:

  • Add up your current monthly expenses. When you subtract those expenses from your income, how much money (if any) are you saving each month?
  • Project forward in time. If you were to make the same amount of money for the next X years, and have the same expenses, would you achieve your goals on time?
  • If the answer is “no,” – calculate how much you would need to put in savings each month to achieve those goals.

While you are running your calculations, you will also be coming up with a monthly budget. Your goal should be to save as much as possible every month.

Do Not Forget!
Inflation is also a factor which will make it even more challenging to reach your desired destination.

3. Cut Expenses

The next step to saving as much as you can each month is to look for ways in which you will reduce your expenditures and keep insurance affordable. But that is a topic for another article as there are many different possibilities here.

4. Create a Plan For Paying Off Your Debts

If you have debts among your expenditures, you will need to come up with the most efficient and affordable plan for paying them off both now and over the long term.

This entails looking at what’s your current monthly installment and how much you should be paying each month. Also, consider options for consolidating or transferring the debt to accounts with lower interests.

5. Figure Out a Plan For Earnings and Investments

What about increasing your income to achieve your goals? If possible, come up with a structured plan for advancing your career and increasing your salary over the years ahead.

If you are investing, plan your approach here as well. You might want to consult with an expert if you need direction with your investments.

What Are the Risks of Not Making Financial Planning a Habit?

If you do not have a financial plan, you are merely guessing you will be able to buy a home, raise your children safely and comfortably, and retire at the end. You are driving blindfolded.

Without financial planning and budgeting, there are some possible fallouts:

  • You may not ever manage to pay off your debts successfully.
  • You may not be able to give your children the lives you want to.
  • You might not retire at the age you intend, or at all.
  • You might never accumulate the funds you need to buy a home, start a company, work on a project, or achieve some other important goal.
  • You could have no inheritance to pass on.
  • Your everyday existence could be swamped in financial struggle and emotional stress.

With a plan in place, you are taking off the blindfold and writing down directions. You give yourself the best possible chance of reaching your destination without running out of gas.

Need Help? Consider a Financial Planning Software

It will probably take you some time and hard work to get your financial plan together, but doing so can pay off in huge ways over the rest of your lifetime.

If you need a little extra assistance, there are many financial planning tools out there, including software you can download. These tools can simplify and speed up the process. They can also help you track your budget going forward.

Create a “Maintenance” Plan For Your Finances

Finally, financial planning and budgeting are never “set and forget” things. Come up with a plan for how often you will revise your budget and your overall financial plan. Making monthly accounting a part of your routine is a very wise step.

You can also set up reminders to make payments on time and handle other responsibilities.

Good luck in achieving your goals!



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