What is a financial plan and how can you make one? 

5 mins readLast updated January 23, 2024by Kate Morgan

Take control of your money in 2023. Learn what a financial plan is and how to make one with an Unbiased guide to setting financial goals, budgeting and ensuring you have a financial plan in place for retirement.

In times of financial uncertainty, it can be more beneficial than ever to keep control over your personal finances through good financial planning.

Perhaps you’ll buy your first home, upsize to accommodate a growing family or get your finances up together for a post-retirement trip of a lifetime.  

Whatever your financial short or long-term goals, a good financial plan will help you to optimize your income, assets, savings, and investments.

In this article, we show you how to create a financial plan to help meet your goals. 

What is a financial plan?

Put simply, a financial plan is a methodical and long-term approach to your income, investments, savings, assets, estates… anything that could contribute to your personal wealth.

A plan will help you set out measurable and realistic financial goals for 2023 and provides tactics to achieve these, with milestones or a timeline to ensure you stay on track. 

Why create a financial plan?

In 2021, the US focused Schwab Modern Wealth Survey found that of respondents who had a financial plan, 65 per cent described their finances as ‘stable’, compared to just 40 per cent of those without a plan.

Anyone can benefit from good financial planning, which can be guided by frameworks like the Financial Planning Pyramid to set customized goals and benchmarks. However many people avoid making a plan for a number of reasons.

These include not thinking your income is large enough to require planning, thinking financial planning is too complicated and not having enough time.  

With our guide, you’ll see that anyone can benefit from a financial plan to introduce stability and minimize uncertainty. 

How to create a financial plan

This can be broken down into a series of bitesize steps. 

1. Set financial goals 

These should be a series of SMART goals: specific, measurable, achievable, realistic, and timely.

Don’t set the goal of being a millionaire by the end of the year if it’s not realistic! 

These goals can be anything relevant to your situation, so may include, for example, reducing credit card debt by a certain amount by the end of the year, diversifying or increasing your investment portfolio, or saving a certain amount each month towards a retirement fund.  

2. Set out a budget 

This links back to the measurable part of your goal setting and helps track your income versus expenses.  

In considering income, look at your net rather than gross income (after taxes) to give a clearer idea of available funds.

Your expenses can be broken down into fixed and variable expenses. Fixed expenses are those such as mortgage/rent and utility bills that are the same each month. Discretionary or variable expenses are inconsistent or fluctuating. These include food, clothing, children’s clubs, vacations, or savings and investments. 

Once you’ve figured out your personal balance of payments, you’ll be better placed to make decisions around tactics to help achieve your goals. 

You can learn more about budgeting in our How to Start Budgeting guide

3. Start an emergency/contingency fund 

The one certainty in life is change and having money put by for an unexpectedly expensive day can provide reassurance and reduce worry should the worst happen.

House repairs, vehicle bills, time off work, they can occur at any time, so ensure that you put by a certain percentage of your monthly budget towards this fund. 

4. Pay off any debt 

Once you’ve set out your budget, it will become clear if a large percentage of your expenses is in debt repayments.

The interest charged on some debt can be far higher than interest received from savings and investments, so pay down your debt as a priority.

Remember, financial planning is about the medium to long term, so look to go over the minimum repayment on debts (check for any fees involved with this) and bring yourself out of the red in a sustainable way. 

5. Savings and investments 

According to the Bureau of Economic Analysis, the Personal Saving Rate of the average American in November 2022 was 2.4 per cent.

This is personal savings as a percentage of disposable income so when budgeting, if you can aim to save at least 2.4 per cent of income as a minimum then you’ll be on track. 

Any funds available for savings and investments can then be invested by either personal research or through the use of an experienced financial advisor

6. Consistent financial reviews 

Whether you do it yourself or use a financial advisor, planning to make changes where necessary is all part of a dynamic financial plan.

Review savings and investment returns, debt repayment dates and utility payments to ensure that the price you’re paying is the optimum amount. 

Additionally, circumstances change, so make sure your financial planning keeps pace with your life. 

7. Plan for Retirement 

The earlier the better! No matter what age you are it’s never too early to start thinking about life after work.

Plan to ensure that large debts such as your mortgage are paid off by the time you retire and income streams begin to reduce.

Similarly, ensure that your pension payments are optimized and that your savings and investments provide a long-term return. 

Content writer

Kate Morgan

Kate has written for leading publications and blue chip companies over the last 20 years.