Creating a Financial Plan

17 AUGUST 2023

Financial plans are important tools to have when your finances need a little more structure or if you are saving towards an important milestone. Read on to learn how to create a financial plan.Creating a Financial Plan

What is a financial plan and why is it important?

A financial plan is an overall view and breakdown of your finances, your goals, and how you aim to achieve those goals. It includes all the details of money coming in, in the form of income or investments and money going out, for example, expenses or debt repayments. As your financial situation changes, so will your plan. As it is an ongoing process, it will help you navigate your money and where you need to spend it.

Why should you have a financial plan? It’s important because it enables you to keep a hand on your assets while keeping you on track for your goals and milestones. Financial plans are simple enough to adopt by yourself, with online assistance, or with a financial advisor. It doesn’t cost anything to create one and is an excellent exercise to build confidence in your finances.

7 Steps to creating a financial plan

1. Set your goals

Your financial goals form the basis of your financial plan. What do you aim on doing with the money you save? Do you have short-term and long-term goals? Don’t be afraid to include milestones that you would like to achieve in 5 to 10 years. Prioritize and be specific about the details of your goals so that you can work towards the ones that are within your reach immediately.

2. Create a budget

Get an overall view of your incoming cash flow and track your spending. Review how much you are putting away each month as savings and where you could cut back on spending. This will help you keep track of your money and budgeting effectively. A budget will also help you start putting away set amounts towards one of your goals.

3. Plan for your taxes

Be prepared for upcoming tax seasons by reviewing your withholding, estimated taxes, and tax credits that you could have qualified. Use tax-sheltered accounts if you need to save money on taxes or ask your accountant how you can plan for and save for taxes.

4. Manage your debt

Start paying off high-interest debt like credit cards and payday loans. This type of debt can eat up your savings and have you paying more than what you borrowed, so it’s important to manage your debt. Follow the 28/36 guideline, which means 28% of income before tax goes to home debt and 36% towards all your debt.

5. Start an emergency fund

Set a minimal goal to put away each month to cover small emergencies so that you do not have to use from your savings. Increase this goal when you are able, to cover a month’s living expenses. Learn why and how you should start an emergency fund.

6. Invest in insurance

Insurance is a key component to protecting your money, your health, and your assets. Income insurance is especially important as it protects your income when you are unable to earn it due to illness or injury. This will, in turn, protect your financial plan and your future goals.

7. Keep your retirement savings up-to-date

Start saving up for retirement as soon as you can, this will mean that you won’t have to save larger amounts when you’re older as you might need more than what you expect. Calculate how much you will need to put away every month so that you can gradually increase what you’ve saved over the years.

Top 5 finance tips

  • Stick to your budget, no matter what. Even better, automate your savings so that you don’t have to worry about it. Revisit your budget and financial plan every few months.
  • Consider investing small amounts of money or into a saving account for the long-term.
  • Review your credit score as and when you need to. Keep track of your debts and if they will harm your score.
  • Don’t leave your retirement up to chance, start to save when you’re able to.
  • Update your wills and financial records regularly. The well-being of your family is important to consider when you are not around, and financial records will ensure that all your finances are accounted for.

The key to good financial planning is to have your bases covered from the start and have clear goals as the driving force behind your plan. Review and revisit your financial plan as your finances change so that it stays up-to-date.