How to Create a Financial Plan

Today, you will learn how to create a financial plan that works for you and your situation.

You and your family are the only people who feel the long-term effects of creating or not creating a financial plan. That is why starting early and sticking to your game plan is essential.

While most people focus on creating a traditional financial plan, an optimal plan includes a non-traditional component for many people.

The focus of a traditional path is planning, saving, investing, accumulating wealth, and creating passive income streams to support your lifestyle.

A traditional financial plan includes your cash flow, expenses, and insurance. Examples of insurance include property and casualty, disability, umbrella, life, long-term care, and any other insurances you need based on your situation. It also includes your tax, retirement, and estate plan.

The non-traditional financial plan includes:

• The psychology of wealth.
• Removing and releasing money blocks.
• Alternative cash flow methods and income streams.

The best strategy for you and your family depends on your situation. Individuals with a healthy money or abundance mindset who are not plagued with money blocks or a poverty consciousness and are accumulating enough money to meet their retirement goals will probably meet their objectives with a traditional model.

On the other hand, if you have money blocks, do not make enough money, or are not sure you will achieve your retirement objectives, it is good to consider non-traditional options.

A solid financial plan will allow you to:

• Remove money blocks
• Save money
• Budget for future expenditures now and in retirement
• Invest for your long-term goals, like retirement
• Pay for your kids’ or grandkids’ college tuition
• Achieve other objectives based on your situation

In my experience, creating a financial plan that combines traditional and non-traditional elements is optimal to ensure you live a financially free life you love.

Create a Financial Planning To-do List

Let’s begin by creating a to-do list of what you need to do to achieve your financial goals. This list is essential to your financial security, so create your list based on your situation and priorities.

Examples include:

• Identify and remove money blocks that are keeping you stuck.
• Create a monthly budget that includes your yearly expenses and income. Click here, to download The Magical Budget Template.
• Develop a plan to pay off debt.



• Fund an emergency reserve fund with three to twelve months of expenses.
• Create a retirement plan that will support you after you retire.
• Invest in and monitor a diversified investment portfolio.
• Identify and create multiple streams of income.
• Save for other financial objectives.
• Determine and purchase the insurance coverage you need (P&C, health, disability, long-term care, life, umbrella, etc.).

Start Creating Your Financial Plan Early in Life

The best time to create a financial plan was ten years ago. The next best time is today.

Instead of beating yourself up for not beginning earlier in life, commit to starting today.

Whether you team up with your partner or go it alone, the path to financial independence is not always a smooth, perfectly paved road. But don’t despair; it’s time to roll your sleeves up and get your hands dirty. That’s right—it’s time to learn how to create a solid financial plan.

How to Create a Financial Plan for Yourself and Your Family

1. Set Your Financial Goals

Identifying financial goals is the cornerstone to creating a financially free life you love. You must know what you want to accomplish to achieve it. When it comes to setting goals, you must identify and set objectives. The best statement includes “I am” or “I (active verb)” statements. I (or my partner and I) earn $100,000 (in the year) with ease, or I accumulate (amount) net worth with ease. Write out clear, well-defined goals that you prioritize.

And while I strongly encourage you to set big, hairy, audacious goals, make sure to set smaller milestones. That way, you can measure your progress and celebrate small wins on your journey.

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2. Fund an Emergency Reserve

It is essential that you fund a reserve for emergencies. An emergency fund will help you prepare for unforeseen circumstances and will help to ensure you do not have to use credit cards or borrow from your retirement to pay for unexpected emergencies. Create an emergency reserve before you pay off your debt. Generally, an emergency fund consists of six to 12 months of expenses. The amount depends on your situation. Consult with a financial advisor if you do not know how much you need to set aside.

3. Pay Off Debt

When you commit to a financial plan, it is essential to include a plan to get out of debt. It is difficult, if not impossible, to create a financially free life you love if you have significant debt.

From the high-interest rates, large minimum payments, and stress it can cause, paying off debt is a great idea. List all your debt, including the interest rates you are paying. Then prioritize which credit cards you will pay off first. While it requires discipline, living debt-free is one of the best decisions you can make. I have never had anyone living without debt share that they wish they had chosen a different path.

4. Purchase the Insurance You Need

The purpose of insurance is to protect you from a loss.

You work hard to earn your money; insurance provides a recovery plan if a circumstance occurs that requires a significant amount of money to resolve.

• Health Coverage

  Medical insurance covers the risk of an illness or injury. While a larger deductible will reduce your monthly payments, you need to weigh the lower premium against your ability to afford the larger deductible if you file a claim.

• Property and Casualty Insurance

  P&C insurance includes your auto, homeowners, rental, and personal liability policies. Reviewing your limits and deductibles with a qualified agent is critical.

• Umbrella Policy

  Depending on your assets, an umbrella policy may be applicable. An umbrella policy aims to protect your assets if you are sued for more than your property and casualty insurance limits cover.

• Disability Insurance

  A disability insurance policy covers the loss of income if you can’t work. Because a loss of income can be devastating, consult with a qualified disability specialist. An option for business owners is overhead insurance, which covers your monthly business expenses if you are disabled.

• Long-Term Care Insurance

  

  Another important insurance is for long-term care. Long-term care is expensive, as is the cost of insurance to protect against it. Your analysis must weigh the cost against the need and determine the amount of coverage you require. Long-term care insurance policies are complex, so use a qualified expert.

• Life Insurance

  Insurance on your life covers the loss of income from your death. Life insurance will provide your loved ones with the money they need.

  Another reason to purchase life insurance is to cover the loss from the untimely death of a business owner or partner.

  It is important to purchase enough insurance to cover the loss of money from an untimely death. Some people buy a policy that only covers a few years of expenses to save money on the premium, which is rarely the best choice. If you cannot afford to cover the loss of expenses your loved ones will need after your death, determine how you can lower your overall expenses or generate more income. Examples may include downsizing your home, reducing your monthly expenses, or getting a part-time job or side hustle so you can afford the insurance premium.

• Business Liability Coverage

  If you are sued, both errors and omissions and business liability insurance may protect your business from liability.

You want to purchase coverage for items that have an expensive replacement value. This will help to ensure that you (and your loved ones) are protected financially if a loss occurs.

The right insurance plan can lessen the financial burden of a major disaster.

5. Create an Investment Plan

An investment plan allows you to put your money to work for you. The first step is to determine your goals, objectives, time horizon, risk tolerance, and other circumstances unique to your situation.

Investing is a long-term endeavor that requires patience, discipline, and commitment. Money invested in the stock market or real estate is considered a long-term investment and is typically recommended for people who do not need their money for seven to ten years. A short-term commitment generally is three to five years. Short-term assets are generally invested in more liquid assets. When creating an investment or retirement plan, you must factor in inflation.

While you may do your own investing initially, hiring an investment professional is a good idea once you start accumulating wealth. Your monthly budget should include a certain percentage of your income that you invest each month.

6. Create a Retirement Plan

An ideal investment plan includes both after-tax and retirement (pre-tax) investments. The first step is determining how much money you will need to retire in your desired lifestyle. If you have an opportunity to invest your salary into a retirement plan, this generally is an excellent strategy. Often your employer will match a portion of your investment, which gives you free money.

While retirement might seem like a lifetime away, it’s never too early to start planning! A solid financial plan will enable you to retire and live life on your terms when the time comes!

7. Plan for Taxes

Ugh, the joy of taxes! While taxes take a considerable amount of your hard-earned money, a tax plan can help to mitigate the burden. When determining your retirement plan, make sure your projections include taxes. Tax planning is vital because taxes can dramatically impact your monthly cash flow.

Investing after-tax money in a tax-efficient portfolio can prove advantageous. In addition, you want to investigate tax deductions that can save you money. And you need to factor in property taxes you owe on real estate you own. While the mortgage holder of real estate will include your monthly property taxes in your mortgage payment, you must pay the taxes on real estate you own free and clear. I have known people who almost lost a paid-for home because they forgot to pay the property taxes. This may seem hard to believe, but it can happen if you own several properties and do not have a system to track all your property taxes.

Hiring a qualified CPA or enrolled agent will help ensure your tax plan is adequate.

8. Create an Estate Plan

Estate planning is a critical element of a successful financial plan. An estate plan provides instructions on what to do if you are incapacitated or die. It also identifies who will be responsible for managing and distributing your assets. If you have children, your estate documents will dictate who will serve as their guardian. Estate planning documents typically include a will or pour-over will, trust, financial power of attorney, and medical directive.

A qualified estate lawyer should set up and update your estate plan.

9. Schedule an Annual Financial Plan Review

Now that you have created a financial plan, the next critical action is to review it and make the necessary adjustments if your circumstances change. While an annual review is generally ideal, your situation will depend on the changes and events during the year. Some people can go several years before an update is needed, while others (who have a more complicated financial situation) may need to review it more frequently.

Once you have completed your financial plan, it is generally easier to maintain and update it.

10. Create a Money Mindset

While most experts leave this out, in my 30+ years of advising people, I can confidently share that developing a healthy money mindset is critical to achieving long-term financial success. A successful money mindset identifies and removes beliefs and money blocks that keep you stuck. Understanding the psychology of money makes the path to financial freedom easier and more enjoyable.

Your journey to living a financially free life will likely have changes. There will be challenges, as well as extraordinary, joy-filled moments. By focusing on your long-term goals and objectives, the setbacks and roadblocks will not deter you from your destination.

Tips on How to Create a Financial Plan

1. Calculate Your Net Worth Annually.

Your net worth is the sum of your assets (what you own) less your liabilities (what you owe). Even if you do not have a net worth or it is a negative figure because you have more liabilities than assets, make it a habit of calculating it each year. An important reminder is that your income is the king, and your net worth is the Ace. Reviewing and monitoring your net worth each year will help to keep you focused on your progress. From paying off debt to growing your net worth, all wins help keep you focused on your ultimate financial goal.

2. Review your Budget Each Month and Adjust it in Real-Time

As your situation changes and some bills are paid off and others surface, remember to update your budget. Keeping your budget up to date is a critical step on your journey.

3. Stop Impulse Buying

If you have a history of impulse buying or difficulty living within your budget, go here and follow the 3-Day Rule.

4. Balance Your Accounts

Each month, you should balance your checking account and credit card statement.
Remember to review all transactions to ensure they are all accurate.

5. Consider Paying Your Credit Card Balance Each Week

Paying off your credit card each week helps you stick within your budget and not overspend.

6. Pay All Bills by the Due Date

If you use a credit card to pay your expenses, always pay it off before the due date.

While this seems obvious, making sure you have enough money to pay all your bills on time reduces the stress and anxiety that often occurs when paying bills.

7. Create Routines and Habits Around Your Money

Pay bills on the same day each month or week, complete your reconciliation on the same day, and celebrate when you hit your target.

8. Monitor Your Investment Statements

Always check your investment statements, especially when making deposits into your account. If your investments were made based on your risk tolerance, time horizon, and goals and objectives, reviewing your statements with your advisor annually should suffice. As your situation and circumstances change or your account allocation dramatically changes, you need to review your account more frequently. If you are currently not automatically funding your investment and retirement plan, make it a priority to set it up.

9. Review Insurance Policies

Continue to review your insurance policies with your advisor annually. If your circumstances change, you must immediately review and update your insurance and overall financial plan.

10. Track Your Net Worth

It’s also essential to monitor your net worth over time to ensure you are on track with the long-term goals and financial objectives that you’ve set out to accomplish. Many people have a negative net worth when they start. But this often changes with time and their continued practice of good financial habits.

Additional Tips to Help You on Your Journey to Financial Freedom:

1. Delay Gratification

In Daniel Goldman’s book, Delayed Gratification, he shares an experience where kids were offered more marshmallows if they didn’t eat the marshmallows left on the table. It is fascinating to observe the kids who ate them as soon as the researchers left the room and those who were able to delay their urges to eat them.

Not surprisingly, our ability to delay gratification will go a long way in supporting us in achieving our money goals.

2. Affirm Your Goals

Most people set goals but never achieve them.
One study showed that over 92% of people who set goals at the beginning of the year gave up by the 19th of January.

The ideal format to set goals you can achieve is to state your goals in “I am” or “I (active verb)” statements. For example, “I earn $100,000 in (year) with ease,” or “I accumulate $1,000,000 net worth with ease.”

Once you set your goals, identify one to two consistent actions you will take to achieve the goal.

3. Identify Consequences

Predetermining the consequences of your actions is a powerful tool for motivating you to complete the required steps to achieve your goal.

For example, you get to golf or get a massage on Friday for completing your required actions. If you don’t complete the predetermined actions, you must donate to your least favorite political candidate.

4. Make it a Game and Have Fun

Achieving financial goals is what we make it. If we make it a stressful, overwhelming experience, it will be hard and anything but enjoyable. When we see it as a puzzle we are putting together with friends; it only requires us to put the pieces in place and have fun; the entire experience will be more enjoyable.

5. Write Your Goals in a Journal

Writing out your goals and regularly reviewing them will help keep them top of mind. Also, note what is working and what you need to tweak. Reviewing your journal is a great way to see progress and stay motivated when challenges surface.

As you continue to work on your finances, you will have wins and challenges like all of us. That is normal and okay. A helpful tip: If you take the time to write out your goals, you will increase your odds of achieving them.

Why Do You Want to Achieve Financial Freedom?

The secret separating millionaires from others is that they decide what they want and why they want to achieve financial freedom. Regardless of what is happening, they stay focused on their big-picture goal. They don’t sit around beating themselves up when they have a setback. Instead, they learn from it and move forward with new information that supports them in achieving their financial goals.

Most millionaires want to know how to create a financial plan. They also stay focused on the financial goals they want to achieve.

Final Thoughts on How to Create a Financial Plan so You Can Achieve Financial and Life Freedom

While learning how to create a financial plan is essential, implementing the plan is what will allow you to achieve your financial goals. That is the key. Remember, this is your life and your financial journey. The results will impact you and your family, which is why it is so important.

Planning for your future is the first step to living a financially free life you love!

Now that you know how to create a financial plan, click here to download the template to create yours: