How to Create a Financial Plan in 4 Easy Steps
1. Define your financial goals and write them down
To plan, you need to know what you’re planning for. When creating your financial goals, aim for the next 1 to 5 years. Your goals will change over time as you live your life. Things you thought were important to you will change, which is why I recommend sticking to a short to a medium-length timeframe.
If it’s not written down, it’s not real. Document your goals in a google doc or a journal. This allows you to regularly review your goals to a) ensure you’re on track to meeting them and b) revise them as you feel necessary.
My three primary financial goals are 1) reduce my expenses by 30% in the next 12 months, 2) paying off my mortgage by April 2022, and 3) build my freelance business income to replace my current income so I can exit corporate finance by April 2023.
2. Be clear on why these are your goals and prepare for obstacles
It’s easy to create goals, but it’s another thing to commit to your goals. Our brains will always revert to what’s comfortable. As soon as you start sacrificing comfort to meet your goals, your brain will try to convince you to go back to what’s comfortable.
For example, my goal to reduce expenses by 30% was pretty easy in the beginning. I called my phone and internet service provider to find a lower-priced plan. I cut back on some of my streaming plans. And I cut back on my thermostat in the winter.
But once I eliminated the low-hanging fruit, I had to evaluate my lifestyle and make some difficult decisions, including cutting back on eating out and finding a way to increase my income. Â I had to set my alarm an hour earlier and cut back on working out to create more time in my day.
My brain fought and continues to fight me every step of the way because it wants to go back to where it’s comfortable.
The trick to sticking to your goals is to prepare for obstacles. Create a list of obstacles you expect to come up against while working towards your goals. Create plans to overcome those obstacles. For example, I have a picture of my home office taped to my debit card. Anytime I’m tempted to spend money outside of my budget, I’m reminded of my reason for cutting back my expenses.  It’s silly, but it works for me.  Find what works for you.
3. Work your goals into your budget
Once you’ve identified your goals and you’re 100% committed to them, you’ll want to reflect your plan in your budget. The easiest way to do this is to break up your goals into bite-size chunks and implement them a little at a time.
For example, if your goal is to cut your expenses, identify which expenses you’re going to cut and when. Say you subscribe to HBO, Netflix, and Amazon Prime. You use Amazon Prime regularly for shipping, and you watch Netflix every night, however, you only subscribed to HBO only for Games of Thrones. Since Games of Thrones is now over, you can cancel that. When setting your budget next month, account for the reduction of streaming services. Then don’t forget to cancel it.
4. Periodically review your goals for alignment with changes in your life
Your goals are set at a specific point in time, based on the desires and wishes you have then. However, life can be unpredictable. You may meet the love of your life, unexpectedly find out you’re going to be a parent, or your job may move you across the country. Any of these changes may result in a need to update your goals.
Don’t be afraid to pivot on your goals, as long as you are always making progress.
Have you created a financial plan? What additional tips do you have? Join the conversation in the comments below.
Read more
- Life is Unpredictable: Do You Have a Plan for Emergencies and Financial Stability?
- The Ultimate Financial Planning Checklist
- Create A Budget In Four Simple Steps
Kate Fox is a former CPA, with twenty years of experience in public accounting and corporate finance. Born and raised in Alaska, Kate is currently based out of southeastern North Carolina. She loves coaching others on personal finance and spends her free time traveling with her family or relaxing by the pool with a good book, probably about money.