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Tips for Creating a Financial Plan

March 19, 2021 · 6 minute read

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Tips for Creating a Financial Plan

One critical step for creating financial security is establishing a financial plan. A well crafted financial plan can help you achieve your goals, like buying a house, crushing your debt, or saving for retirement. Knowing that you’re prepared financially to face what’s ahead, can help create peace of mind.

A solid financial plan will be different for everyone, but there are a few cornerstones to consider as you build your personal financial road map.

Creating a Financial Plan

A financial plan is not just another word for budget or debt-reduction plan. It’s the long-term roadmap that could help make your vision a reality. The smaller pieces, like budgets and debt-payoff strategies, are tools to help you get there.

And whether you sit down with a financial planner or do it yourself, putting pen to paper and writing down not only what you want, but how you plan to get it, could help take it out of your head and make it real. (If you’re the creative type, you might even consider a vision board.)

Setting Your Goals

While everyone’s financial goals will be different based on their individual situation, these are some common goals that tend to rise to the top of the list:

•  Having an emergency fund. Generally, three to six months worth of living expenses can be used as a threshold to determine how much money you’ll want in your emergency fund. It can be used to cover those unexpected expenses that show up, or float you through a loss of income, without wrecking your plan.
•  Growing your 401(k) or other retirement accounts. If your employer offers a matching contribution, consider contributing 100% of what they’ll match. Combine that with the magic of compound interest, and you could see your balance grow at a nice pace.
•  Eliminating high-interest debt. It’s no secret that eliminating your credit card debt could not only save you thousands of dollars in the long run, it could also help improve your credit score. While those are certainly important, they’re not the entire list. Some other financial goals that might make sense to you could include:
•  Establishing (and maintaining) good credit. If your dreams include large purchases, or even starting a small business, a bad credit score can be a deal-breaker. The minimum number needed to buy a home, for example, currently sits at around 580 for a conventional loan. (If you’re struggling with bad credit, there are strategies that could help you improve your score.)
•  Paying off your student loans. If this is one of your financial goals, you likely share it with more than 45 million of your closest friends. And while a student loan is generally considered “good” debt, it still accrues interest.
•  Living within your means. Conventional wisdom suggests you shouldn’t borrow more than you can afford. If you think you may need to borrow money, you could begin with a reality check to decide if you can afford to pay off the debt. If not, you may want to consider saving money until you can.
•  Saving for your kids’ education. No one can predict what the higher-ed landscape will look like when your kids are ready to start filling out applications. But we do know that the average cost for tuition and fees for a public college with in-state tuition is hovering at just under $10,000 and college tuition has been increasing at twice the rate of inflation .
•  Growing your investment portfolio. This might include items like your 401(k) and individual retirement account, but it can also mean a foray into the world of stocks and mutual funds. Becoming a smart investor can not only be a goal by itself, but one avenue to achieving other financial goals.

The goals that you choose as part of your financial plan may be on vastly different timelines, and you may need to accomplish one before you can move on to another. It can help to group financial goals into categories based on their time horizon—short term, midt-term, and long-term goals.

One way to stay focused is to remember that you’re in it for the long haul, and huge changes probably aren’t to happen overnight (unless you win the Powerball, of course.)

Understanding Your Resources

Knowing exactly what you have to work with might be one of the most important keys to building a plan that works. To put the entire puzzle together, though, you’ll need to find all the pieces.

One way to get started is to gather up all your paper and electronic bank statements, billing accounts, and portfolio documents. (You might also consider storing all your passwords in one place while you’re at it.)

So, what are you looking for? The details on where your money is, how it’s moving, and whether it’s working for or against you. This might include:

Income: Salary, investment income, alimony
Expenses: Bank statements reflecting withdrawals or other debits, monthly billing statements, and other sources of everyday spending
Assets: Savings accounts, home equity, or physical items you own (car, collectibles, etc.)
Liabilities: Credit card debt, student loans, mortgage(s), and any other sources of debt

The next step—categorizing spending—might be one of the most challenging due to the ever-changing nature of monthly expenses. (But you’ll likely thank yourself for putting in the work later.) An app like SoFi Relay® can give you a birds-eye view of your finances and let you track expenses all from one place.

However you choose to organize your finances, you might want to consider a method that feels natural rather than trying to force yourself into a pre-set structure. You might be more prone to let all your hard work go idle if you just don’t like the system.

Analyzing Outcomes & Exploring Alternatives

If the organization is the outline of your financial puzzle, then creating and analyzing your working plan is like filling in the center. If a piece doesn’t work one way, you can turn it around and try something different.

For example, if your 401(k) continues to grow at its current rate, and you continue to contribute the same amount each month, how much will you have at age 65? What if you push your retirement until age 67, or increase your risk-tolerance on your retirement accounts, or increase your monthly contribution?

Or, if your debt will take too long to pay off using the snowball method, might another strategy work better? You could keep an eye out for areas in your plan that fall especially short and consider giving them some extra TLC.
With a lot of diligence and “if this, then that” tinkering, you may soon find yourself looking at a realistic, workable financial plan.

Looking for Help If You Need It

If the picture just isn’t coming together, don’t forget that DIY doesn’t mean do it alone. If you look around, you’re likely to find quality, no- or low-cost expert advice that could help ensure you’re on the right track.
Your employer may offer access to planning tools, for example, as part of their employee benefits package. A number of low- or no-cost services may also be available to you, such as the Association for Financial Counseling & Planning Education® .

And, if you become a SoFi member, you’ll have complimentary access to financial planners who can help you build a financial plan unique to your needs and goals.

Implementing the Plan

Did you think you’d get through an entire article on how to make a financial plan without one mention of the “b” word? Here it is—the part where you create a budget that helps you implement your plan.

If saving is your ultimate goal, one helpful way to create a solid budget is to track every cent. Understanding your spending habits could help you control them.

You might also want to stick to some of the basic tenets of personal finance, like paying your bills on time, keeping one eye on your credit report, and choosing your financial institutions wisely.

Monitoring and Reviewing

It’s been a few months since you implemented your financial plan, and so far, so good. But things may have changed a bit.

You paid off one credit card, so you need to reallocate that payment to the next debt. Or, a goal that used to be at the top of your list isn’t so important any more.

Reviewing your plan can mean not only making adjustments, but simplifying. This can include automating any new payments, consolidating new debts, or opting out of paper statements to reduce clutter.

The Takeaway

Creating a financial plan is an important step to financial security. To get started with your personal financial plan, prioritize your financial goals, review your current income and spending, and then analyze and make changes in a way that will help you meet the financial goals you set. Establish a budget and check in regularly to help keep yourself on track. If you’re overwhelmed by the process, take advantage of available resources like using a budgeting app or meeting with a financial advisor who can assist in the planning process.

And remember, your financial plan is something that should work for you. So as your life changes, adjust your financial plan to fit.

Having the right accounts can go a long way toward helping a person achieve their financial goals.

Learn more about how SoFi Money® can help.


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