7 Easy Steps to Make a Great Financial Plan

Updated June 02, 2021

If you want greater financial security, you’ll need to know how to make a financial plan that works for you. The good news is that smart financial planning isn’t hard. Here are seven expert-approved steps to help you create a financial plan to get you back on track. 

1. Track Where Your Money Is Going

The first – and most important – step for smart financial planning is a budget that details where your money goes (expenses/savings) and comes from (income) each month. 

Creating a personal financial plan doesn’t need to be complicated. Think of it like a monthly money guidebook by:

  • Tracking your income and expenses in a notebook

  • Using a budget template spreadsheet  and updating it weekly 

  • Finding a budgeting app that helps you automatically track your income and expenses. Some options are Mint, Wally, and Personal Capital. 

To capture every expenditure, carry on this tracking and budgeting for more than one pay period. Once you figure out your current expenses, you’ll be able to make better future financial plans. 

2. Set Financial Goals for Your Future 

Once you’re diligently tracking your income and expenses, start thinking about the future and how to meet your goals. 

Then, ask yourself this question: “Where do I want to be 10 years down the road?” Avoid generic answers like, "I want to be rich." Answer with specifics like: 

  •  "I want to own a house with the mortgage half paid off”

  •  “I want to have an investment portfolio of $500,000”

  • “ I want a college fund for my kids.” 

  • “I want to travel to 15 countries.” 

Setting specific goals helps to stay on track with your financial plan. 

3. Start Saving Now

After you set your personal financial planning goals, start saving for a potential personal financial crisis and then for your bigger goals. This means you’ll need to reexamine the expenses and income you’ve been tracking, then start saving in one of two ways: 

Cutting Expenses

Determine where you might be spending too much. Are you splurging on entertainment? What about your car payments, vacations, or food?

It’s important to look for ways to save, but balance is also crucial. Your goal isn’t to eliminate every fun activity but to control your spending to free up some of your income for savings. 

Increasing Your Income

You can also save more money by increasing your income. This can be done by asking for a raise, changing careers, picking up a side hustle, or taking on a second job. Just make sure that your extra income is actually being put into a savings account. 

4. Build a Portfolio into Your Personal Financial Plan 

While you save for your short-term financial goals, a longer-term financial goal should be kept in mind: retirement. This will be one of your biggest life expenses and it needs to hold a major place in your financial plan. 

Whether you cut expenses and/or increase your income, the key to investing is to do it consistently over the long term. Why not start with as little as $50 a month and then increase whenever you can?

For new and seasoned investors alike, the easiest way to build an investment portfolio is with mutual funds. You can easily find mutual funds that match your particular risk tolerance,  and they’re great to spread out your investment risk. Mutual funds also provide professional money management – and that’s a great idea if you don't have the time (or expertise) to go it alone.

5. Create Financial Plan Exit Strategies

You’ll want to plan an exit strategy to match every savings and investment goal in your financial plan. An exit strategy has two components: how you allocate money and how you can access that money. 

Say that you want to buy a home within ten years. You’ll probably need to allocate less money towards your investment portfolio and save more money in a short-term account (like a money market account).  When it comes time to purchase your home, make sure that it’s easy to withdraw your down payment money. Be sure to investigate the fees and withdrawal penalties of your account. 

Similarly, if you’re going to require money for your children’s education or even your retirement, be sure to have an exit strategy.Consider an estate plan for your heirs, too. 

6. Keep an Eye on Your Credit

Good credit is essential for finding the best interest rates for financing as well as the best credit card offers. 

 You'll need to check on your credit score with each of the three big credit agencies: 

You can get a free copy of these official reports once per year at AnnualCreditReport.com. Make sure that there are no discrepancies between your records and the credit reports. If there are errors, dispute them with the agency reporting them. 

You can also keep track of your credit score during the year with websites like CreditKarma. If you notice a change in the score, it’s an indicator that something has changed with the accounts under your name (e.g. addition of a credit card, paying off a loan). 

7. Keep Track of Your Financial Plan

The financial planning steps listed above aren't a "one-and-done" kind of system. You always need to keep tabs on your personal finances. 

  • Have your goals changed? 

  • Has your income or debt gone up or down? 

  • What are your current family needs and health? 

  • How have your investments performed? 

Depending on the circumstances, it may make sense to review your financial plan quarterly.  When you do so, don’t confuse your long-term goals (retirement) with short-term ups and downs in your personal life. More simply, don’t change your financial plan without looking at the entire picture. 

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Ask an Expert
All of our content is verified for accuracy by Rachel Siegel, CFA and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about 7 Easy Steps to Make a Great Financial Plan.

When Do I Make a Financial Plan? 

You should make a financial plan as soon as possible. Financial plans are essential no matter where your income is at. You can take control of your money and get it working for you by making a financial plan today. 

Who Needs a Financial Planner? 

Financial planners are typically hired when a major event has occurred with your finances. You might consider hiring one if you:

  • Are getting divorced

  • Sell your business 

  • Are in serious debt 

  • Inherit a large sum of money or property

A financial planner will help you navigate these kinds of challenging situations and point you in the right direction by providing a personal financial plan.

Rachel Siegel, CFA
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Rachel Siegel, CFA is one of the nation's leading experts at ensuring the accuracy of financial and economic text.  Her prestigious background includes over 10 years creating professional financial certification exams and another 20 years of college-level teaching.

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