What Is a Financial Plan and How Do You Build One?

A financial plan is a detailed roadmap that outlines your financial goals and the actions needed to reach them. Typically documented in writing, a financial plan makes your objectives tangible and easier to follow. Many people incorporate an investment strategy into their financial plan, since investing plays a key role in building long-term wealth. In addition to investments, a well-rounded financial plan often includes elements like estate planning, retirement planning, college savings and other strategies to help secure your financial future.

A financial advisor can help you design a budget that meets your long-term goals.

What Is a Financial Plan?

A financial plan identifies, organizes and prioritizes your financial goals, then outlines the steps you need to take to achieve them. It can also help you track your progress toward these financial goals and help you determine whether you need to make adjustments. These plans may cover financial needs like consolidating debt, opening bank or brokerage accounts, establishing a savings regimen or building an investment plan.

Financial plans can stretch over years, months or decades, depending on the time horizon of your goals. But through seemingly small steps, like having a monthly savings goal or investing a portion of your paycheck, your financial plan can lead to much better preparation for the future.

Financial plans are typically flexible too, allowing for any possible life changes or unforeseen events. This could encompass an extended hospital stay, a marriage, the birth of a child, a move, a new job and more.

What Are the Essential Components of a Financial Plan?

A comprehensive plan will need to cover multiple aspects of your financial life, such as your tax situation, retirement accounts, and investment portfolio.

There are a number of key elements that are typically involved in a good financial plan. Although they all affect your money in different ways, their cumulative effect dictates what your financial future will look like.

Parts of a Financial Plan

The 5 Steps to Creating a Financial Plan

Most people have a wide range of short- and long-term financial goals, from paying down debt to planning for retirement to building a college fund. But since everyone’s personal situation is unique, each financial plan will look a bit different. In general, though, there are five main steps to the creation of any in-depth financial plan:

1. Determine your financial goals.
2. Compile relevant documents and account statements that paint a picture of your current financial situation.
3. Create a short- and long-term plan to reach your financial goals.
4. Begin putting your financial plan into practice.
5. Adjust your financial plan as your life and goals change.

Step #1: Outline Your Financial Goals

The first thing you need to do when putting together a financial plan is determine exactly what you want to accomplish. Start by reviewing possible short- and long-term goals and objectives. These goals will become the driving force of your financial plan.

• Short-term financial goals: These are financial objectives you aim to achieve within the next few years, typically within one to five years. Short-term goals usually focus on immediate needs and small financial milestones. Examples include building an emergency fund, paying off credit card debt or saving for a vacation or a car.
• Long-term financial goals: These are financial targets that take longer to accomplish, generally spanning more than five years. Long-term goals often focus on larger, more significant financial outcomes that require sustained effort and planning. Examples include saving for retirement, buying a home or funding a child’s education.

Look at your financial future as a whole when outlining these goals. All of your finances are connected, so don’t just focus on one aspect. For example, when it comes to family planning, you may want to think about not only starting a college savings fund, but also putting a down payment on a house.

Step #2: Collect Information About Your Finances and Investments

Once you’ve set goals, you can compile an overview of your financial situation. Include any assets and liabilities, such as properties, investments, retirement accounts and loans. Analyzing all of this information provides a more accurate understanding of your current financial standing.

When you’re collecting this information, start with consistent outlays like your rent or mortgage, utility bills and other fixed expenses. Then look at your spending history to get an idea of your discretionary spending on things like groceries, entertainment, travel, clothes and other areas. And of course, you’ll want to have a clear sense of your income, including your paycheck and any investment or rental income.

Knowing where you stand now will help determine the next steps you need to take to achieve your goals. You can tweak your goals or timeline based on your starting point, their practicality and feasibility.

Step #3: Construct a Comprehensive Financial Plan

With your financial standing and goals defined, you can start developing the actionable steps of your financial plan. Most likely, this will include saving money for retirement, establishing an emergency fund or a big purchase. Investing will also likely play a prominent role in your financial plan. Over the long term, investing in the market can be an effective way to grow your wealth.

How exactly you invest your money will likely be dictated by your goals, time horizon, risk tolerance and other factors. If you work with a financial advisor, they can help you identify and implement an appropriate asset allocation: your strategic mix of stocks, bonds, cash and alternative investments.

If you have significant debt, part of your plan will be to pay it down. How exactly you go about it (whether you get a consolidation loan, increase your monthly payment or leave it unchanged) will depend on your situation.

Rather than focusing on paying down credit card or student loan debt, wealthier individuals often engage in tax-efficient borrowing or strategically managing debt to enhance overall financial returns.

Wealth preservation through estate planning, including setting up trusts or foundations, may also be critical components of your financial plan, especially if you have considerable assets.

A financial advisor can help with the financial planning process, offering recommendations based on your financial overview. Whether it’s suggesting a savings minimum or proposing a debt repayment timeline, they are there to help. Take into account any risks or alternatives they point out. If your financial plan ever needs to be changed, these steps can prevent you from getting stuck.

Step #4: Implement Your Financial Plan in Your Everyday Life

Once you’ve created your plan, it’s time to put it in action. It may be easier to start off small, rather than immediately jumping into the deep end. For example, instead of saving half your paycheck at once, start saving in small increments.

The timeline of your financial plan can stretch for years, so there may not be any immediate results. But stick to the steps outlined in your plan and you will reach those milestones in no time.

It’s important to follow the steps you set in your financial plan. However, it’s just as important to recognize that unexpected things do happen, from starting a new job to having a medical emergency. Any situation that arises that you didn’t expect can impact your finances, so you should make changes to your plan accordingly. That way, it can better reflect your financial standing.

Step #5: Periodically Revise Your Long-Term Financial Plan

Of course, financial changes may impact your ability to reach your financial goals. You’ll want to check on your plan to see if you can still meet those goals after those unexpected hurdles. If not, you can easily change the plan. You can alter your timeline, set a higher savings minimum or change the goal altogether.

Meeting with your financial advisor every few months can be helpful. If necessary, they can help make changes to your plan to steer you back on track. Be adaptable and open with your advisor when it comes to revising your plan according to new objectives or setbacks.

Financial Planning With the Help of a Financial Advisor

While it’s certainly possible to craft a financial plan on your own, it’s an exceptionally difficult process. This is where a financial advisor with financial planning expertise can come in handy.

Financial advisors differ from specialized professionals like estate planning attorneys, as they focus on a more holistic overview of financial planning. They provide not only an overarching gauge of your overall situation, but also extensive advice to help you meet your goals. They can also help you create a tax-friendly plan.

When choosing a financial advisor to build a financial plan with, look for those with designations like Certified Financial Planner™ (CFP®) or chartered financial consultant (ChFC). These certifications ensure that the advisor has garnered the proper education and experience in the financial planning field. However, just because an advisor might not have these certifications doesn’t mean they’re not qualified to help you.

Though financial advisors often have an overall understanding of financial planning, most work within specific financial fields. For example, an advisor may specialize in services for those close to retirement, while others work more with younger clients. Therefore, pick an advisor that closely aligns with where you are in life.

What Financial Planning Typically Costs

Financial advisors charge for planning services in several ways. A one-time comprehensive financial plan from a fee-only advisor typically ranges from $1,000 to $5,000 or more. The cost largely depends on the complexity of your finances, the advisor’s experience, and your geographic market. ¹ Plans at the lower end of that range usually cover the fundamentals. You’d receive a net worth snapshot, a cash flow analysis, retirement projections and basic investment recommendations. More complex plans that address estate planning, tax optimization, business succession or multi-generational wealth transfer tend to fall toward the higher end.

Hourly rates for financial planning work typically cost around $300 per hour. ² This structure works well for people who need help with a specific decision rather than a full plan, such as evaluating a pension payout option, reviewing an investment portfolio or working through the tax implications of a Roth conversion.

Some advisors offer ongoing financial planning as part of an assets under management arrangement, charging an annual fee of roughly 0.5% to 1% of the assets they manage. For a client with $500,000 invested, that translates to $2,500 to $5,000 per year. That fee covers both investment management and ongoing planning reviews, though the value of the planning component varies considerably by advisor.

Subscription-based financial planning has also grown in popularity, with monthly fees typically ranging from $100 to $500 depending on the level of service. ³ This model is particularly common among advisors who work with younger clients who are still building assets and may not have enough to justify an AUM-based relationship.

What You Get for the Money

The value of a financial plan is not limited to the document itself. The more meaningful return comes from the decisions it informs and the mistakes it prevents.

Research consistently shows that investors who work with a financial advisor tend to save more, make fewer emotionally driven investment decisions and end up with better retirement outcomes than those who manage finances on their own. Avoiding a single major mistake, whether that is claiming Social Security too early, carrying the wrong insurance coverage, or holding an inefficient asset allocation for years, can produce a financial benefit that far exceeds the cost of the plan that identified it.

A financial plan also provides value during transitions. Starting a new job, receiving an inheritance, divorcing, approaching retirement or selling a business each create decisions with long-term financial consequences. Having a plan in place before those events arrive, rather than reacting to them without a framework, reduces the likelihood of costly decisions made under pressure.

When DIY Financial Planning Makes Sense

Not everyone needs to pay for a professional financial plan. If your financial situation is straightforward, you have no dependents, carry little debt, invest through low-cost index funds and have a clear sense of your goals, building your own plan using available tools and resources is a reasonable approach. The five-step framework outlined in this article is a practical starting point, and free or low-cost tools exist to support budgeting, retirement projections and investment tracking.

DIY planning tends to break down when complexity increases. Multiple income sources, a business interest, significant assets in different account types, estate planning needs, or a major financial event all introduce variables that interact in ways that are difficult to model without professional training. The more moving parts your financial life has, the more a professional plan is likely to pay for itself.

How to Evaluate Whether the Cost Is Justified

For a straightforward analysis simply compare the cost of hiring an advisor against the decisions at stake. For example, the difference between the right and wrong Social Security claiming strategy can amount to tens of thousands. A plan that costs $3,000 and produces a better outcome on that single decision alone has paid for itself many times over.

If the decisions in front of you are smaller in scale, the math looks different. A 30-year-old with $50,000 in savings, no major assets and straightforward finances may get more value from a one-time hourly consultation to review their investment allocation and savings rate than from a comprehensive plan. Matching the scope and cost of the engagement to the complexity of your situation is the most practical way to evaluate whether professional financial planning is worth the investment.

Common Mistakes to Avoid When Creating a Financial Plan

Even with the best intentions, it’s easy to make mistakes when putting together a financial plan. Being aware of these common pitfalls can help you create a more realistic and effective strategy for achieving your goals.

• Setting unrealistic financial goals: A plan based on unattainable goals can set you up for disappointment and failure. Make sure your objectives are specific, measurable and aligned with your income, expenses and time frame.
• Ignoring inflation: Over time, inflation erodes the purchasing power of your money. Failing to account for rising costs, especially for long-term goals like retirement, can leave you short on funds when you need them most.
• Overlooking taxes: Taxes can significantly impact your earnings, savings and investments. A good financial plan should include tax-efficient strategies to help you keep more of what you earn and grow your wealth faster.
• Not building an emergency fund: Without a safety net, unexpected expenses like medical bills, car repairs or job loss can derail your plan. Aim to save three to six months’ worth of living expenses in an easily accessible account.
• Underestimating healthcare costs: Healthcare expenses tend to rise as you age, and they can take a significant bite out of your retirement savings. Make sure to factor these costs into your long-term plan.
• Failing to review and adjust your plan: Life circumstances change, whether it’s a new job, marriage or unexpected expense. Regularly reviewing and updating your financial plan ensures it stays aligned with your current needs and goals.

Bottom Line

A financial plan helps you responsibly manage your money and plan for the future. Though making a plan may take some time and dedication, it will likely pay off in the long run. In turn, you’ll have a clearer path to the future for you and your family. Don’t be afraid to seek out a financial advisor if you’re unsure of where to begin with your financial plan.

Tips for Building a Financial Plan

• Financial plans can get complex, so having the help of a professional can be extremely beneficial. Financial advisors often provide financial planning services, along with investment advice if you need it. SmartAsset’s free tool matches you with financial advisors who serve your area. And you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Do you want to start investing on your own? Start by opening a brokerage account and selecting an asset allocation for your personal risk tolerance. A robo-advisor service can further simplify your investments, as they invest your money based on proprietary algorithms.
• For DIYers, there are plenty of useful financial planning software options on the market. Check out SmartAsset’s list of financial planning software to learn more.

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