May 25, 2024

A financial plan is a roadmap for your money that helps ensure you are saving enough for important life goals like retirement, your child’s college education, a down payment on a home, or other big purchases. Creating a comprehensive financial plan involves assessing your income, expenses, assets, liabilities, and financial goals and then making a plan to meet those goals.

Determine Your Financial Goals

The first step is to determine your critical financial goals. Do you want to save for retirement, pay for your child’s college, buy a home, eliminate debt, or do something else?

Write down your top 3-5 financial priorities for the next 5-10 years. These will guide how you allocate your money and savings.

Review Your Income and Expenses

Next, take a close look at your income and expenses. Make sure you understand where your money is coming from each month, whether from your paycheck, business income, interest, dividends, or other sources. Then review several months of bank and credit card statements to see where you are spending your money. Look for expenses that seem too high or discretionary expenses you want to reduce. Tally up your income versus expenses to see if you have a monthly surplus or deficit.

Create a Budget

Use your income and expense review to create a realistic budget that aligns with your financial goals. Allocate your income to essential expenses first, like housing, food, and transportation, then to discretionary items and savings goals. A good rule of thumb is to keep discretionary expenses under 30% of your take-home pay. Stick to your budget each month to keep your finances on track.

Save for Important Goals

Make sure your budget includes contributions to savings for key goals like an emergency fund, retirement, college, a home purchase, or other priorities. Automate as many transfers to these savings accounts as possible so you save money before you have a chance to spend it. Increase your retirement and other contributions each year as your income rises to stay on track.

Monitor and Update Regularly

Once you have a financial plan in place, monitor your progress regularly and make adjustments as needed. Revisit your financial goals and savings contributions at least once a year to ensure they align with what’s most important to you. Make changes to your budget and expenses as your income or costs change. A financial plan is not static, so review and update it frequently to keep yourself on the road to financial success.