Plan for Tomorrow | How to create a financial plan
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How to create a financial plan

Oct 9, 2023, 3:43:03 PM | Reading Time: 5 minutes

As we head into fall and Financial Planning Month, it’s 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 is also a perfect opportunity to fine-tune your financial plan or start building one to manage your money more effectively and make more confident financial decisions. While each person’s strategy may differ, several financial planning basics can help set you up for success.

How to create a financial plan

What is a financial plan?

As a roadmap, a financial plan provides direction and can help guide your money decisions. This plan will likely adapt as you go through your life and your needs and goals change. Having a plan to guide you can help lower stress and create a more robust financial foundation for the future.

You may hesitate to jump into financial planning but following a few basic guidelines can help simplify the process. Since each plan is unique to the individual, it can be as detailed or as straightforward as necessary. Typically, a financial plan is a written or digital document that outlines short- and long-term financial goals and the timeline you’d like to accomplish each.

What should be in a financial plan?

A comprehensive financial plan typically has multiple parts supporting each other to accomplish your goals. Your income feeds into your budget; your budget breaks down this income into money for expenses and financial goals, and those goals all tie together to make up your overall plan. Here are some key elements to consider including as you build your financial plan.

Your 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

Your goals are the core component of your financial plan and create the foundation to build your 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

Once you’ve evaluated all of your debts and assets, you can then establish a budget and determine where you can reduce spending, put more toward savings, and how to allocate your income the most effectively.

Debt management

You likely 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 your payments, your balance can grow quickly and affect your credit score.

Emergency savings

Building an emergency fund can help you be financially prepared for the unexpected, like sudden medical expenses, the loss of a job, or car or house repairs. With money set aside, you won’t have to tap into savings or increase credit card debt.

Insurance coverage

Having insurance coverage in place can help protect different aspects of your financial life and the lives of your loved ones. Coverage options can include health, home, car, and life insurance.

How does insurance benefit a financial plan?

Factoring insurance into your financial plan can help add security and predictability by protecting your assets in an emergency or unexpected event. Typically, you’ll have a predetermined 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 you build assets for the future, including investments, 401(k)s, IRAs, and annuities.

Building a financial plan

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

  •  Taking a comprehensive financial snapshot.
  •  Setting your goals.
  •  Developing your plan.
  •  Reviewing your strategy to ensure it still matches your current situation.

Gain a big-picture view of your finances

You can begin the financial planning process by taking a 360-degree view of your finances and listing all of your accounts. Take note of your monthly income, your regular bills, outstanding debt, and how much you have in savings. As you enter the process, you may decide you would prefer assistance in creating your financial plan. 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 your short- and long-term goals and what you envision for the future. Once you have outlined your goals, you can build a plan around those objectives, determine how much money is needed for each, and which tools and solutions can help get you there.

Put your plan in action

With your goals in mind, it’s time to help turn them into reality. This can be looking at your 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 helps make staying on top of your finances easier and allows you to work toward your goals more efficiently.

Check your progress

Once your plan is in action, it’s important to check periodically to see if you’re making progress or falling behind. The dates you set for specific goals act as guideposts where you can measure if the timeline still makes sense, if you have the necessary income to put toward this goal, and if the priority of this goal still makes sense in your current situation.

When working with a financial professional, you can review your goals and current financial situation more closely and determine if any changes are needed. Remember, your financial plan will likely evolve as your life changes, so regularly revisiting your goals and setting aside time for an annual financial checkup can help keep your 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 your overall financial plan. Building a financial plan can help shape your future, support smart money decisions, and outline the resources you will need to achieve your goals and reach the finish line.

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.