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Have a question? Ask our Retirement expert.

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Ask Our Retirement Expert

Have a question? Ask our Retirement expert.

Have questions? Email Send your question to jbarnash@smartasset.com

What Is a Financial Plan?

When it comes to planning for the future, you may not even know where to start. On top of planning for retirement, there are potential expenses like college for your children. This is where a financial plan can help. It identifies your financial goals and outlines the steps to achieve them. A concrete plan helps quell any nerves about the future and lets you work toward your goals.

Check it out: Find the right financial advisor for you.

What Is a Financial Plan?

A financial plan is a comprehensive overview of your financial standing and goals. It’s an assessment of your economic goals and current finances. You start by looking at aspects like assets, debts and net worth. Then with that information, you determine the next steps to take to reach your financial goals.

Financial plans stretch over years, preparing you for the long term. Whether you’re looking at estate planning, savings planning or family planning, it should be in your financial plan. Through small steps, like having a monthly savings goal or investing your money, your financial plan can lead to much better preparation for your future.

What Factors Are in a Financial Plan?

Everyone’s financial goals are unique to his or her own situation. So each financial plan will vary from person to person. Generally, financial plans consist of your financial goals, an analysis of your current financial situation and a plan to achieve your goals within a certain time frame. The plan should be flexible, too, to allow for any unexpected situations like hospital stays.

A lot of thought and calculations go into making a financial plan. If you find it too much to do on your own, you might want to consider working with a financial advisor. They have the financial planning expertise to assess your situation and help you create a plan to achieve your goals. They also provide you with an objective viewpoint and can give you honest recommendations.

Making a Financial Plan: Outline Your Financial Goals

Start by defining your financial goals, both short term and long term. You’ll want to make sure these goals are realistic. This can include putting a down payment on a house, paying off student loans or buying a car. These goals will become the driving force of your financial plan.

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. The different factors and situations to take into account can be confusing. This is when the help of a financial advisor is useful.

Making a Financial Plan: Find a Financial Advisor

What Is a Financial Plan?

Financial advisors are experts in financial planning. These advisors differ from specialized professionals like an estate planning attorney. Instead, financial advisors provide a more comprehensive overview of financial planning. They provide an accurate gauge of your overall situation plus advice on achieving your financial goals. They can also help you create the most tax-friendly plan for you.

Make sure your financial advisor is certified in financial planning. Most advisors will have either a certified financial planner (CFP) designation or a chartered financial consultant (ChFC) designation. These certifications ensure that the advisor has received the proper education and experience in the financial planning field.

Though advisors have an overall understanding of financial planning, most of the time they also specialize in specific financial fields. For example, an advisor may work only with those close to retirement, while others work more with people in their 20s. You want to make sure that your advisor understands your future aspirations and knows how to work toward them. Don’t be afraid to meet with a few financial advisors before choosing one that fits best with your situation.

Some advisors are associated with a particular service or product. Often, they receive compensation for referring you to these services. You may want to watch out for these advisors. They may just want to sell you a product, regardless if it’s good for your situation. You should find an advisor who works toward your best interests, not theirs.

Making a Financial Plan: Collect Financial Information

With your financial advisor, or on your own, you can begin an overview of what your financial situation looks like. Include any assets and liabilities, such as properties, investments and loans. Analyzing all of this information provides a more accurate understanding of your current financial standing.

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 off your starting point, determining their practicality and feasibility.

Making a Financial Plan: Create the Plan

With your financial standing and goals defined, you can start developing your financial plan. Aspects of a financial plan include estate planning or a retirement fund. Identify the necessary steps toward achieving those goals. These steps can be a monthly savings minimum, making investments or building up credit.

Making small goals like this will help make goals more reachable. These small strides will pay off, and you get to celebrate each small victory towards your even bigger goals. For example, allow yourself to save (and celebrate saving) a set amount of money each month. After those small victories, you’ll have enough money to buy a new car!

Your financial advisor can help with this process, offering planning 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.

Making a Financial Plan: Implement the Plan

What Is a Financial Plan?

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.

In addition, your advisor can help you with things you may have no experience in. For example, they can refer you to a stockbroker if you want to look into investing. Again, you’ll want to make sure your advisor is not receiving any financial gain for referring you to that particular professional. If they are, they may not have your best interests in mind.

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.

Making a Financial Plan: Revise the Plan if Needed

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.

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.

Bottom Line

A financial plan helps you manage your personal finances and plan for the future. Though making a plan may take some time and dedication, it will pay off in the long run. You’ll have a clearer path for reaching big milestones and will be better prepared for the future. Financial planning can be overwhelming, but especially with some professional help, you’ll end up rewarding yourself by achieving your goals.

Photo credit: ©iStock.com/sturti, ©iStock.com/bowdenimages, ©iStock.com/AndreyPopov

Emily Zhu Emily Zhu writes on a variety of personal finance topics for SmartAsset. Her expertise includes retirement, credit cards, taxes and banking. She grew up in Brooklyn, but now splits her between Brooklyn and Rochester. Emily is currently studying at the University of Rochester.
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