Financial plans are written and organized strategies for the purpose of maintaining good financial condition and achieving economic goals. Even if you enlist the help of a professional financial advisor, it is your responsibility to contemplate and develop your own personal financial plan that focuses on your unique needs and situations, your wishes and goals. Follow these steps to learn how to make a personal financial plan.
Steps
Step 1. Set goals
A personal financial plan revolves around the goals you want to achieve. Think about what you want your standard of living to be in the present, the immediate future, and the more distant future, then create a framework of your goals that is comprehensive enough to encompass all aspects of your life.
- Intellectual goals. Promoting one's education, attending management meetings, sending children to college, and attending seminars are all examples of intellectual goals.
- Occupational goals. A personal financial plan requires that you produce an income stream and you need to take into consideration how you plan to produce income, whether it is receiving salary increases, getting career promotions, or completely changing jobs.
- Lifestyle goals. This category includes leisure, fun, entertainment and anything else you think will help you achieve the standard of living you aspire to.
- Housing goals. Your financial plan must take into account your possible desire to move and change residence.
- Retirement Goals. Take into consideration the standard of living you would like to have when you retire and set your financial plan goals so that they can ensure you have a peaceful and comfortable retirement life, according to your needs.
Step 2. Organize your financial data
Create a filing system including your tax returns, bank statements, insurance information, contracts, receipts, wills, deeds, securities, invoices, investment plan statements, retirement statements, payment stubs, professional pension statements, mortgages and any other type of document that is related to your financial life.
Step 3. Create a preliminary budget
Your budget is the starting point for determining how you intend to achieve your financial goals, as it allows you to identify and evaluate your spending habits. Record all your current monthly expenses in writing, as well as your current monthly income.
Step 4. Determine what spending habits you need to change
Using the budget as a reference, identify unnecessary monthly expenses, so that you can redirect the money spent badly in achieving the goals outlined in your personal financial plan.
Step 5. Make a projection of your expected future income
Consider your future plans to increase your cash income, as well as the timing to make these anticipated changes. When forecasting your future income, consider the following three income-generating methods and decide which ones you intend to use.
- Career. Traditional employment with an employer, whether on a fixed or hourly basis, constitutes career income.
- Business. If your financial plans include starting a business from home or making a profit from a hobby or interest, then that income should be classified under "business".
- Investments. Investing is an activity that leverages money to produce an economic return and includes stocks, bonds, real estate, money market accounts and certificates of deposit.
- Inheritance. In addition to active income-generating methods, include any money received as an inheritance in your projected income.
- Unexpected income. Circumstances may arise in the future where you find yourself with an unexpected lump sum of money (this can be lottery winnings, gifts, prizes and / or real estate revaluations). Also consider this possibility and determine how you would use that money. For example, you can allocate 50 percent to your retirement account and the other 50 percent to developing a business, or you can choose to put the entire amount into an interest-bearing savings account.
Step 6. Set a time schedule to accomplish your goals
Divide the goals into categories, starting with the goals of the present and distributing the rest of the goals into the immediate future (within 1 year), into the future (within 5 years), into the extended future (less than 10 years) and into the distant future (after the pension).
Step 7. Create an extended budget
This budget differs from your preliminary budget in that it uses your projected income and accounts for expenses to meet future goals. Make sure you include both necessary and discretionary expenses.
Step 8. Define a financial strategy to support the achievement of your goals
Taking into consideration your spending projections, time frames, and goals, calculate how much of your revenue you need to spend on achieving each goal on a monthly and yearly basis. This amount may vary in correlation with future income projections.
Step 9. Commit to Fulfill Your Financial Plan
It's not enough to just work it out and write it down on a piece of paper - you have to commit to sticking to the steps you set out if you want your personal financial plan to be truly effective.
Step 10. Rewrite your financial plan as needed
Remember that making a personal financial plan is a goal - not a process - and may need to be updated if your life circumstances change. If you find that your income is not enough to meet your goals, rephrase the plan to create more income through career, business and / or investment, or reset your goals to a more realistic picture.
Advice
- Purchase personal financial planning software to automate the organization and writing of your financial plan.
- Get educated. Read books, newspaper articles, finance magazines, and online newspapers that cover financial and business topics. Follow business news on television and consult with experts in the financial planning industry. The more you know about this topic, the more you will be able to plan for your future economic well-being.
- If you find yourself having to choose between different investment methods, get advice from a professional financial advisor.
