How to create a financial plan

As we head into fall and Financial Planning Month, it can be a great time to review your finances and check in on the progress of any goals you set at the beginning of the year. This can also be a perfect opportunity to build a financial plan or fine-tune an existing one in order to manage money more effectively and inspire greater financial confidence. While each person’s strategy may differ, there are several financial planning basics that can help set you up for success.

What is a financial plan?

A financial plan is a strategic blueprint that outlines how a person can manage their finances to achieve their short and long-term goals, incorporating budgeting, saving, investing, and risk management. Whether it’s simple or complex, having a plan can help lower stress and create a foundation for the future.

A well-structured financial plan can help an individual make informed financial decisions, stay on track with their goals, and adapt to changes in their financial situation. Since this document is fluid and can change as you age and personal needs or circumstances evolve, it’s important to regularly review it to check progress, decide if adjustments are needed, and determine if current money habits are still in line with financial goals.

The benefits of a financial plan

A financial plan can provide clarity and direction for managing finances, helping a person achieve their goals, avoid unnecessary debt, and build long-term wealth. When it comes to financial planning, the sooner someone starts, the sooner they can adopt healthy habits and understand how to manage money more effectively. Benefits of a financial plan include:

• Prioritizing spending so money goes toward where it’s most needed
• Increasing financial literacy and allowing the development of lifelong money habits
• Improving financial stability
• Reducing money-related stress and worry
• Promoting confident financial decisions

Parts of a financial plan

A comprehensive financial plan typically has multiple parts supporting each other to accomplish financial goals. A person’s budget is usually based on their income; the budget divides this income into money for expenses and financial goals, and those goals all tie together to make up an overall plan. To build a financial plan, consider these key elements:

Current net worth

Take inventory of your current assets, such as bank accounts, investments, and property owned, and compare them to outstanding debts, like student loans, mortgages, and credit cards.

Short and long-term financial goals

Financial goals are the main components of a financial plan and can help create the foundation for building a strategy. It’s a good idea to have short-term (within the next five years) and long-term goals (after ten or more years) and organize them in order of priority and timeline.

A realistic budget

Creating a budget helps outline income and expenses and allows a person to allocate funds more effectively to manage finances, control spending, and achieve financial goals.

Debt management

Most people have two kinds of debt. If you have a mortgage, for example, this can help build equity. However, credit cards are a type of high-interest debt, and if you do not stay on top of payments, the balance can grow quickly and affect overall credit score.

Emergency savings

Building an emergency fund can ensure financial preparedness for unexpected events such as sudden medical expenses, job loss, or repairs to a car or home. Having money set aside prevents the need to dip into savings or accrue additional credit card debt.

Insurance coverage

Having insurance coverage helps safeguard various aspects of financial well-being and the well-being of loved ones, with options including health, home, auto, and life insurance.

How does life insurance benefit a financial plan?

Factoring life insurance into your financial plan can help add security by protecting your assets in an emergency or unexpected event. Typically, you’ll have a predetermined death benefit amount, so you’ll know exactly how much money you can count on if something happens.

Retirement goals

No matter your life stage, it’s always a great time to start saving for retirement. There are many tools to help build assets for the future, including 401(k)s, IRAs, investments, and annuities.

Building a financial plan

To determine where you’d like to go financially, it’s good to identify a starting point. Doing so allows you to more easily determine the financial moves you need to make to accomplish financial goals. Steps can include:

• Taking a comprehensive financial snapshot
• Setting financial goals
• Developing a plan
• Reviewing your plan to check if it still matches current situation

Gain a big-picture view of finances

Starting the financial planning process involves taking a comprehensive look at finances and listing all accounts. It’s important to record monthly income, regular bills, outstanding debt, and savings. During this process, it might become clear that seeking assistance in creating the financial plan could be beneficial. Finding a financial professional can offer helpful guidance and advice to set you up for success.

Think about the future

The next step in the financial planning process is to identify short-term and long-term goals and envision the future. After outlining these goals, a plan can be developed around them, determining the necessary funds for each objective and selecting the tools and solutions that could be useful.

Put plan in action

With goals in mind, it’s time to help turn them into reality. This can be looking at a monthly budget and determining how to break down expenses, cut unnecessary spending, and allocate income toward savings goals. Using auto pay and automatic deposits when possible can help make staying on top of finances easier and allows you to work toward your goals more efficiently.

Check progress

With a financial plan in place, it’s crucial to regularly review progress to check goals are being met or if adjustments are needed. The deadlines set for specific objectives serve as benchmarks to assess whether the timeline remains possible, if the required income is available, and if the priority of the goal still aligns with the current circumstances. When working with a financial professional, you can review goals and current financial situation more closely and determine if any changes are needed. Remember, a financial plan will likely evolve as life changes, so regularly revisiting goals and setting aside time for an annual financial checkup can help keep a financial plan current and in line with your vision.

Support your financial future with personal financial planning

As you create a financially fulfilling life supporting your needs and goals, North American is here to help and offer guidance on the benefits of adding annuities and life insurance to an overall financial plan. Building a financial strategy can help shape your future, support money decisions, and outline the resources you will need to achieve your goals and reach the finish line successfully.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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