Today I’m sharing an excellent post about how to create a financial plan from my blogging friend Jim Wang. Enjoy!
Have you ever left a restaurant and noticed a fishbowl full of business cards by the door with a sign that read “Want a free dinner? Meet with a financial planner!”?
When I was younger, I dropped my card into one of those bowls—who doesn’t like the idea of a free meal?
What I didn’t realize was that the free dinner came with an hour-plus meeting with a “financial planner” who turned out to be more salesperson than advisor. I left without a plan, but I did learn how those fishbowls work.
We all know a financial plan is important, yet few of us have one. Many people assume you must see a professional to get a plan, and that doing so costs too much in time or money.
The truth is you don’t need to hire anyone to build a basic financial plan. It’s straightforward, and in this article I’ll walk you through how to build one by yourself.
To be clear: I’m not a certified financial planner. I have no formal credentials, though I’ve met with several professionals and currently work with one. A planner can help with both strategy and execution. Remember, a plan that isn’t executed is just paper.
Related:
- Boldin Review: Is This the Best Retirement Planning Tool?
- 75+ Ways To Make Extra Money
- How To Live On One Income
- How I Earn Over $70,000 A Month Blogging
Note: Boldin is a user-friendly financial planning tool I recommend. It helps you build a plan from home, run scenarios, and see how decisions today affect your future. I’ve used it and found it helpful for taking control of finances.
What is a financial plan?
At its simplest, a financial plan describes your current financial position (A), your desired future state (B), and a strategy to move from A to B based on your income, assets, and expenses.
For example, if you’re currently a renter and single but want to be married and a homeowner in five years, a financial plan estimates whether that goal is feasible and, if so, how to achieve it. The plan is grounded in your financial reality; sometimes that reality shows a goal isn’t achievable on the timeline you imagined.
A good plan gives you clarity—or at least a well-informed best guess.
There are three main parts: documenting your current finances, outlining future goals and states, and creating a roadmap to move from current to future.
Related: I recommend checking the In Case of Emergency Binder, a 100+ page fillable PDF workbook that organizes essential information and simplifies preparing an emergency binder.
Map your current financial state
Start by listing assets and getting a clear picture of current income and short-term income potential. I track net worth monthly in a spreadsheet, which gives a reliable snapshot of where finances stand now.
Each month I update those figures, review credit card and bank statements, and verify everything for accuracy. Regular snapshots serve as financial check-ins and help catch errors or unexpected charges.
Next, develop a high-level view of expenses. A financial plan focuses on funding future goals through a mix of saving and investment growth. How much you can save depends on your income and spending today, so understanding current expenses is essential.
Plan your future states
Projecting the future is the hardest part, because people are poor forecasters. Working with a planner helps you voice and refine plans, but you can also do this with a trusted friend or partner who can give candid feedback.
Don’t plan for just one future—think in a series of future blocks. I like five- and ten-year blocks. What do I want to accomplish at ages 30–35? At 50–60? Aiming to buy a house in five to ten years gives flexibility compared to insisting on an exact five-year deadline.
Blocks allow adjustments: house hunting, finding a broker, getting pre-approved, and closing a purchase rarely happen on a precise timetable. Viewing timelines as ranges makes planning realistic and less stressful.
Once you’ve outlined future goals, estimate the funding needs for each block. The plan’s core is money: how much will each goal cost and when will you need it?
Retirement is often the largest goal. For long-term targets, keep it simple. Use broad rules (like the 4% withdrawal rule) and refine later. The 4% rule suggests a retirement nest egg of about 25 times your annual retirement expenses. So each $1,000,000 saved supports roughly $40,000 per year at a sustainable withdrawal rate.
For example, if you expect $120,000 in annual retirement spending, you’d target $3,000,000. If you expect $80,000, your target becomes $2,000,000.
You can reduce required savings by factoring in pensions or Social Security. If you expect $29,400 a year from Social Security, subtract that from your target spending to calculate the gap you must fund yourself. In this example, an $80,000 spending goal minus $29,400 in benefits means saving about $1,265,000 to cover the remainder.
Plan how to get from A to B
With goals and targets in hand, it’s time for the math.
Your plan is a list of funding needs: down payment for a house in 5–10 years, children’s costs in 10–15 years, retirement in several decades, and so on.
The plan answers two questions: how much to save and where to save it so the money is available when you need it.
Take the retirement example: a target of $1,265,000 in 45 years. Using reasonable assumptions about investment returns and inflation, you can calculate the monthly savings needed. With an assumed 8% return and 3% inflation, saving roughly $822 per month could grow to about $1.5 million over 45 years.
Do the same for near-term goals. If you want $20,000 for a house in five years and choose a low-risk savings account for that short horizon, you’d need about $333.33 per month.
Combined, those two goals require about $1,155 per month. If that exceeds your capacity, you’ll need to earn more, cut expenses, delay goals, or reduce the amounts sought.
Small changes matter: waiting an extra year to buy a house or reducing the down payment lowers monthly savings needs. A plan lets you test variations and make informed choices based on concrete numbers.
Review and update annually
Review your plan at least once a year. Your income, expenses, market returns, and goals will shift over time. Update assumptions and funding needs accordingly.
Accuracy is helpful but not absolute—this is a planning tool, not a crystal ball. If you receive a raise, bonus, or inheritance, your timeline can accelerate. If you experience setbacks or must draw on savings, your plan will need adjustments.
Avoid overreacting to short-term market volatility, but make sensible changes for near-term funding requirements and shifts in life circumstances.
A documented plan helps you make intentional decisions. Without it, you rely on instinct, which rarely produces the best outcomes.
Jim Wang has been writing about personal finance for over a decade at WalletHacks.com. To receive bonus material and weekly updates, sign up for his newsletter.
Do you have a financial plan? Why or why not?
Recommended reading:
- ProjectionLab Review: The DIY Financial Planning Tool
- How To Create a Realistic Financial Plan (That You’ll Actually Stick To)