A financial plan tells you where your money should go. It’s a plan for your money and for you to visualize how you will meet your financial goals. Your financial advisor may show you an example of a financial plan, but each plan is personal and different.
So, what goes into creating a financial plan? Our personal financial plan example will help you create your own, so you know what actions to take to achieve your financial goals!
What is a financial plan?
A financial plan is an overall view of your finances and is key to the financial planning process. It includes your assets, debts, financial goals, and plans to achieve them. There is no right or wrong way to do it. Your plan should be customized to your financial needs.
With that being said, let's get into an example of a financial plan.
Example of a financial plan
A personal financial plan typically includes the following baseline data:
- Your personal information e.g. Age, income, tax filing status, children, etc
- Your financial goals and big picture overview (assets, debt, etc)
- A debt elimination plan
- An investment plan (to build assets)
- Personal insurance
- An estate plan
- Income tax strategies
You can use this information to create your own example of a financial plan. Let's go over each item in more detail:
Financial goals and big picture overview
You can’t plan without goals. Your financial goals should cover today, the next few years, and into retirement. What are your current assets and debt? How would you like to grow your assets? How soon can you work to become debt-free?
You also want to think about employment. How long will you work? Will, you cut down to one income to start a family?
Next, think about retirement. When do you plan to retire? Will it be early, or do you want to work until the normal retirement age? What do you want to do with your money?
If you're thinking of buying a house, car, or paying for college, you’ll need this information in your plan, just like in our example of a financial plan. Every bit of income and the money you’ll need to achieve your financial goals is necessary for your financial plan.
A debt elimination plan
You'll notice our example of a financial plan includes listing all of your debt. Creating a debt reduction strategy is an important part of your financial planning process. If you have low-interest debt, you can play around with the numbers and see where you’ll come out ahead. Typically, you should pay off high-interest debt before investing.
If you have a 0% APR credit card or even a card with a rate below 5%, you may consider keeping it and investing your money instead, but that’s a personal decision. Ideally, you’ll be out of debt and free to make other decisions with your money so you can meet your financial goals.
An investment plan
Are your current investments adequate to meet your goals, or do you need to make changes? Are you investing too aggressively or too conservatively?
A personal financial plan example should include a retirement plan. Don’t overlook your need to save for retirement. If you work for someone, look into your 401K options.
You should be able to automate your deposits, so you regularly contribute to your retirement fund. The income you defer lowers your tax liability too, so there are benefits of putting money aside for the future.
If you don’t work for someone or have more money to save for retirement, consider opening an IRA. There are two options:
Traditional IRA
With a traditional IRA, you defer income now, paying the taxes only when you withdraw them during retirement.
Roth IRA
With a Roth IRA, you contribute after-tax money. Your contributions and earnings grow tax-free, and you don’t owe taxes when you withdraw the funds during retirement.
You also want to make sure you’ve maximized your contributions. If you haven’t increased your contributions lately, revisit your budget and see how much you can increase them.
Personal insurance
Are you over-insured or underinsured? Do you need to make changes to ensure you’re protected? This would include life insurance, health insurance, auto insurance, disability insurance, etc.
Look over your current insurance and future needs. Do you need term life insurance? Or would whole life insurance better suit your needs? Are your auto and home insurance enough?
Don’t forget about long-term needs such as long-term care insurance and final expenses. Do you have money set aside for your final expenses, or do you need coverage for that too? Overviewing your insurance to ensure you are properly protected should be included in your personal financial plan example.
An Estate Plan
It's also a good idea to decide what you want to leave behind for your beneficiaries too. Are you trying to leave a legacy? Planning for your death isn’t something anyone likes to do, but it’s necessary to ensure your beneficiaries are correct and your assets are protected from probate and taxes.
Having an estate plan can help you do this. This plan essentially acts as a directive for what will happen to your assets and who gets what. It can also include medical and legal directives based on your preferences.
Income tax strategies
Income tax plays a big role in a personal finance plan. Working out ways to minimize taxes each year by strategizing investments, income, and retirement funds will help keep more money in your pocket.
To do this, it's a good idea to work with a reputable tax advisor that can provide the guidance you need since tax laws change often.
Key things to keep in mind as you create your financial plan
The sooner you create your financial plan, the more likely you are to reach your financial goals. Now that you have an example of a financial plan to follow, here are some key things to keep in mind as you develop your personal financial plan template.
Budget your money
Once you know your financial goals, it’s time to budget your money. You can’t reach goals if you don’t put plans in place to work on them. So, in your budget, you’ll need room to save for your goals, both short-term and long-term.
This includes putting money aside in your savings account and deferring some of your income for retirement. It’s best to prioritize your goals, so you save for the most important and immediate goals first and then work on your longer-term goals.
Set up a substantial emergency fund
Nothing upsets a personal finance plan worse than an emergency you aren’t prepared for financially. At the least, save an emergency fund with 3 to 6 months worth of expenses in it. An emergency fund should only be used if you lose your job, fall ill, or get hurt and cannot work.
It’s not a fund to cover you when you spend too much or buy something you can’t fit in your regular budget. The emergency fund helps you stay out of debt and stay on track with your finances even when an emergency occurs. So, be sure to allocate funds from your budget for unexpected expenses.
Track your progress
Creating a budget is one thing, but if you can’t follow through on it, you won’t meet your goals. Tracking your progress is the only way to tell if you’re reaching your goals or if you’re off base and need to make changes.
Tracking your progress doesn’t have to be difficult. You can use a free app like Credit Karma's money management tool, a spreadsheet you create, or even pen and paper! Use what you’re comfortable with and will use often. Refer to your personal financial plan template to ensure you are staying the course with your goals!
If you find you’re not on track to reach your goals, look for areas to make changes. Look specifically for areas you can cut back on your spending to allocate the funds to the areas that need attention so you can reach those financial milestones.
Leverage this example of a financial plan to achieve your goals
Have patience when building your financial plan. Looking at an example of a financial plan may make you feel like you need all the answers instantly, but you don’t.
Remember that everyone's finances are different, and it takes time, corrections, and even some setbacks. That's why it's important to create a personal financial plan template that is customized to your financial needs and goals.
Over time with regular tracking and revisiting your financial needs, you’ll get on the path needed to reach your financial goals. While it won’t happen overnight, with patience and time, you’ll see the fruits of your labor come together.