Financial Planning Process

When it comes to money, there’s no better person to listen to for advice than the man whose face is on the $100 bill.

“If you fail to plan, you are planning to fail,” Benjamin Franklin said.

Ben wasn’t specifically talking about financial planning, but it certainly applies. Big things like buying a house, paying for college, and retiring comfortably don’t happen by accident. Neither do little things, like filling your gas tank without worrying it will drain your checking account.

Large or small, every household has financial needs and goals.

“But a goal without a plan is just a wish,” said Tiana Patillo, a Financial Advisor Manager at Vanguard.

Making those wishes come true takes study, strategy, and determination. It takes a plan. Having one doesn’t guarantee you won’t face financial failures, but it will certainly make that less likely.

What Is a Financial Plan?

A financial plan is an overarching document that establishes your monetary goals and how you will achieve them. It encompasses income, expenses, savings, debt, investments, and all other aspects of your financial picture.

What Is the Financial Planning Process?

There is not a singular way to come up with a financial plan. You can do it yourself, though we’re talking about your financial security here. Unless you are knowledgeable in accounting and investing, you should consider hiring a licensed financial planner.

Either way, the financial planning process usually begins with getting a clear picture of your financial circumstances. Before you go to work, you need to know what you have to work with. Then you should:

• Establish your goals, both short-term and long-term.
• Develop strategies to reach those goals.
• Implement those strategies.
• Keep track of your progress and alter your strategy as needed.

Types of Financial Plans

A good plan will encompass all your financial situations. If you have children, you’ll want a plan that addresses college, trade school, or other education expenses.

Whether you want to get out of debt, set yourself up for retirement, prepare for emergencies, or avoid taxes, there should be a strategy to accomplish that goal.

Retirement Planning

Making sure your golden years aren’t financially tarnished is a big part of most financial plans. To prepare for retirement, you need to save money and invest it during your high-earning years. Do it wisely, and you’ll generate a reliable cash flow until you no longer have any bills.

Education Planning

The average cost of an undergraduate degree ranges from $25,707 to $218,00, according to the Education Data Initiative. Whether your kids go to Yale or Yakima State, it takes a while for most people to come up with that kind of money.

Saving for college could include 529 plans, Roth IRAs, student loans, or other programs. Whichever you choose, the faster you start, the better off you and your wallet will be.

Debt Management Planning

It’s hard to save money when you owe a lot of it. The average balance on credit cards alone was $6,329 in 2024, according to TransUnion.

A debt management plan is designed to consolidate your debts with a lower interest rate and pay them off in 3-5 years. Once you’re out of the hole, you can get serious about building wealth for the future.

Tax Planning

Any viable financial plan tries to keep Uncle Sam’s hands off as much money as possible. There are plenty of ways to do it legally, so the IRS won’t hassle you.

How To Create a Financial Plan

Creating a financial plan is a methodical process. Whether you do it yourself or get help from a financial planner, these steps should get you where you need to go.

1. Set Financial Goals

This can be the fun part, at least at first. You decide what you want your future to look like, both in the near and far future.

Do you want to take a cruise? Pay off your credit cards? Own a house? Pay for your kid’s college tuition? Drive a Rolls-Royce? Retire to a villa in Monaco?

The not-so-fun part is realizing how expensive some of those goals are. So be aspirational since it will motivate you to do the things necessary to reach your goals.

But also, be realistic. Monaco would be fancy-schmancy, but a condo on Panama City Beach wouldn’t be a bad place to retire. Set your financial goals accordingly.

2. Track Your Spending

It will be hard to reach your financial goals without a clear picture of your finances. Create a budget, which will answer two basic questions.

How much money do you make? How much money do you spend?

And where does that money go?

Rent, car payments, utility bills, groceries, Netflix subscriptions, Happy Meals – tracking it all can be a chore. If you need help, there are plenty of money apps that make it easy.

Whichever way you do it, seeing where your cash flows will help you develop strategies to reach your financial goals.

3. Build an Emergency Fund

The best-laid plans can be destroyed in a blink. A tree could fall on your house. An accident could put you in the hospital. A company could downsize and lay you off.

If you’re not ready for such shocks, you’ll have to retool your entire financial plan. The best way to get ready is to build an emergency fund.

You can start small. Try to put away $1,000 so you don’t have to put a brake job or root canal on your credit card. Eventually, you’ll want to put away enough to get you through most emergencies and lean times.

“You should have 3-6 months’ worth of expenses saved in readily accessible investments to help safeguard you when the unexpected occurs,” Patillo said.

4. Reduce Your Debt

Debt means you’ve borrowed money, and borrowed money comes with a price. Interest rates are like a gaping wound on a budget, a 25% gaping wound (or higher) for credit cards or some loans.

That can add up to hundreds or even thousands of dollars a month. Worrying over how you’ll dig out of the financial hole can also lead to sleepless nights. All of which makes it vital to pay down high-interest debt.

Millions of consumers have attacked the problem with a debt management plan. Credit cards are combined into one monthly payment at a lower interest rate.

Such programs typically take 3-5 years to complete. It can be time well spent since it will reduce your financial stress. And once you’re out of the hole, you can really start building for the future.

5. Plan for Retirement

Retirement is like Christmas. It always seems far off, and then suddenly it arrives. The problem for many Americans is there won’t be enough money under the retirement tree.

The typical Gen X household has $40,000 in private retirement plans, according to a study by the National Institute on Retirement. Almost 40% of Gen Xers haven’t saved a penny for retirement.

That age group, born between 1964 and 1980, came along as the U.S. shifted from traditional pension plans to 401(k) or Individual Retirement Accounts (IRAs) as the primary retirement strategy.

If you have an employer-sponsored retirement plan in which your company matches part of your contribution, that’s free money. Try to match whatever percentage your employer contributes.

“The most common mistake I see people make is not contributing enough to their retirement accounts,” Patillo said. “Because you can’t borrow for retirement, saving for it is a priority.”

The do-it-yourself plans have worked out fine for millions of Americans. Millions of others need to get busy, or they might be working until they are put in the ground.

6. Build a Tax Strategy

No doubt, filing a 1040 Form is an annual headache. A good financial planner can reduce a lot of that pain.

There are many ways to shelter income through exemptions, deductions, credits, deferred payments, and other programs. A tax expert can find all those legal loopholes that save you a lot of money.

7. Invest to Build Wealth

Everybody dreams of hitting it big in the stock market, and why not? If you’d bought $10,000 worth of Amazon stock in 1997, it would now be worth about $17.8 million.

The problem is, there aren’t a lot of Amazons out there. That’s not to say stocks and bonds shouldn’t be part of a financial plan. History shows they are a sound investment when managed correctly.

It can be as simple as investing in your 401(k) plan. Or you can delve more deeply into the stock market.

A lot will depend on your age and how quickly you want to accumulate wealth. If time is on your side, low-risk investments like blue-chip stocks and bonds are probably the way to go. If you need to be more aggressive, a qualified advisor might steer you toward technology or renewable energy stocks.

8. Estate Planning

If your financial plan works as hoped, you’ll face a big question. What do you want to happen to your wealth when you’re gone, or no longer able to make sound decisions?

Do you donate it to a charitable cause? Set up a trust for the ongoing care of your racehorses and pet chihuahua? Distribute it evenly to your kids, even if one is a struggling missionary and another is a real estate kingpin?

You need a will that states your final wishes. Other estate-planning documents can spell out how you want to be cared for and who has power of attorney if you can no longer manage your affairs.

9. Monitor and Refine Your Plan

A financial plan should not be chiseled into stone. Be it marriage, kids, health issues, job status — whatever! – the only constant in life is change.

You will eventually need to tweak, alter, and maybe completely overhaul your financial plan to reflect the changes that come along. Once the changes are made, you need to closely monitor your plan to make sure you’re still on track to meet your financial goals.

Benefits of Financial Planning

From motivation to peace of mind, the payoffs are more than monetary with a financial plan. Among them are:

• Reduces worries over your future.
• Provides a clear and detailed account of your financial situation.
• Alerts you to unnecessary spending.
• Boosts your motivation.
• Saves you money on taxes and interest charges.
• Provides short- and long-term goals.
• Increases the chances you’ll meet those goals.

Start Your Financial Plan Today

It might be too late to start a plan that will ensure you’ll retire wealthy or pay for an Ivy League education for all your kids, but it’s never too early to start lining up such goals.

Coming up with a plan takes a planner. If you don’t feel up to the job, find somebody who is.

There are resources available that help you create a budget and stick to it. You may need credit counseling or a debt management program to get out of your money hole and start building a financial future.

Just remember, the future comes fast. As Benjamin Franklin said, if you fail to plan for it, you might as well plan to fail.