Creating a strategic financial plan is one of the most important things you can do for your financial security. A well-crafted plan will help you achieve your financial goals and protect you from unexpected setbacks.
But many people don’t know how to go about creating a financial plan. It’s not as difficult as it may seem. You just need to take things one step at a time and be patient.
Steps in Creating a Financial Plan
Below are some steps you need to take to create a plan that will help you achieve your financial goals.
Step 1. Creating a personal budget is the first step in creating a financial plan. This will give you an idea of where your money is going each month.
Creating this budget will help you identify spending habits that are preventing you from reaching your goals, and it will make it easier for you to create realistic strategies to reach those goals.
Step 2. The second step is identifying your short-term and long-term financial goals, as well as how much they might cost.
For example, if you want to buy a house in five years, then that’s one of your short-term goals; if you want to retire at age 65, that’s one of your long-term goals.
Creating a financial plan is not difficult. Creating a strategic one, however, takes some thought and planning.
Creating the right kind of plan for your needs will help you get on track to fulfilling your goals faster than ever before.
There are many steps involved in creating a financial plan that can be overwhelming to some people. To avoid this feeling, try working on one step at a time and taking it slowly.
Before you know it, you’ll have a long-term plan that will help you achieve all of your financial goals when you need them most!
The key to creating an effective strategy is taking things slowly and making sure that every step you take in the process has been considered carefully. Here’s how to create a strategic financial plan that will work for you:
Define Your Financial Goals
The first step in creating your financial plan is to define what you want to accomplish. If you have already defined your goals, it’s time to review them again to make sure they are still the same as when you created them.
For instance, a couple years ago I had set a short term goal of leaving my day job in 2 years. Once I knew what my plan was, I could create the steps I needed to take to make that happen.
I stuck to the plan and actually ended up leaving my job 4 months earlier than planned.
Assess Your Current Financial Situation
One of the first steps in creating a strategic financial plan is knowing where you currently stand financially and understanding how much money you need every month to live (food, housing, utilities).
Creating an accurate budget can help with this part of creating a strategic financial plan because it allows for better planning of predictable costs like insurance premiums, monthly debt payments (car loans, student loans), and more.
Try out one of these budget planners to get started. Sometimes it helps to have something to use when getting started!
Create a Budget
Creating an accurate budget can help because it allows for better planning of predictable and unpredictable costs such as groceries and personal-care items (toothpaste, shampoo, soap), entertainment (movies), and clothing purchases.
Related: How to Save Money on Groceries
When making your budget, you need to evaluate your spending habits. Once you understand what your income is each month and how much money you need to spend on essentials like food, housing, and utilities, it’s time to figure out where the rest of your money goes.
You might use software or apps to track your expenses or simply keep track in a spreadsheet; whatever method you choose, make sure that every single purchase is accounted for somewhere. Read Mint vs. Quicken for an evaluation of a couple apps I like.
Stay on Track With Your Spending Habits
After creating a budget, just make sure to stick with it and keep on track with your spending habits. Creating a budget isn’t about pinching pennies and depriving yourself of everything that you want or need.
It is simply about knowing where your money goes every month and figuring out the best way to live within your means. Creating a monthly budget that is realistic yet gives you the room to save for your goals can help with this.
Tracking your spending carefully over time will help you become aware of every expense, ensuring that nothing goes unaccounted for. Creating a strategic financial plan means staying on track with your spending habits.
If this is your first time trying to stick to a budget, I HIGHLY recommend using Dave Ramsey’s Cash Envelope System. It is a super awesome easy way to get started.
Take Advantage of Your Company’s Benefits
Every company has different benefits available to its employees. Some common employee benefits include paid time off, retirement plans such as pensions or 403(b)’s, health benefits, and tuition reimbursem*nt programs.
Research what your company offers before starting the planning process, so you know how to take advantage of these benefits when creating your plan.
If your company offers a retirement plan where they match a certain percentage, ALWAYS put at least enough in so you are getting the maximum matching. This is FREE MONEY guys!!
Make a Savings Plan
Start saving your extra money for emergencies, retirement, and other larger items that you would like to save up for.
Creating short-term and long-term goals for saving will help you reach your bigger financial goals on time.
Develop an emergency fund. When creating a strategic financial plan, having some money set aside in the event of an unexpected expense is very important.
This is referred to as an emergency fund because these are expenses you cannot predict or plan for, so they should be dealt with on their own through this designated savings account.
Many experts suggest having around three to six months’ worth of living expenses saved up so if you lose your job or suffer a medical emergency, you won’t end up in debt while looking for new employment.
I am a huge believer in having this emergency fund. I highly recommend trying to get 6 months of living expenses saved if you can – you’ll feel so much better having it!
After you’ve started to save money, it’s time to decide how much more needs to be saved before buying something like a house or car.
Creating short-term goals with corresponding timelines (i.e., six months, one year) can help you save enough money in due time so that when the opportunity arises for big purchases, you’ll have the cash ready.
One way to accomplish this is by creating a timeline on paper and putting it somewhere where you will see it every day.
Determine How Much You Need to Save Each Month
When creating your savings plan, you will need to determine how much money you can afford to save each month. Creating a specific dollar amount that you can work toward each month will help keep your savings goals on track.
Now, if you’re on the financial freedom track, you need to get this savings number as high as possible. If you can get a 50% savings rate, you’re going to be financially free before you know it!
It is important to track how much you save every month so make sure to set up a savings account where all of your contributions are deposited and tracked.
You may also want to consider opening an IRA. I personally contribute money to a Roth IRA because all your withdrawals after the age 59 1/2 are tax free. However, you are using after tax money to contribute.
You can also contribute to a traditional IRA and receive a tax credit. However, your distributions will be taxed when you with draw. Read more on Roth vs. Traditional IRAs.
Creating an investment account to house these contributions is recommended as well because it often provides higher returns than traditional checking or savings accounts. You guys know I am a huge believer in putting your money in index funds.
Invest Money Wisely
Research the various ways to invest your money so that you can choose the one that is best for you. Creating a strategic financial plan will require that you invest your money in some capacity:
- IRA
- Company sponsored retirement plans
- Index funds (VTSAX is my favorite)
- Individual stocks (I don’t like investing this way, but to each their own)
- REIT (Real Estate Investment Trusts)
- Rental properties
- Cryptocurrency
- Commodities
There are so many great ways to invest your money. I personally and a huge fan of using real estate to generate passive income. Learn how to buy an investment property.
I also highly recommend putting your money in an index fund like VTSAX. Picking individual stocks is never the way to go – index funds is the best way to automate your investing and grow your portfolio over time.
Read: 10 Best Ways to Invest Money
Reevaluate Your Insurance Coverage
Make sure that you’re adequately covered by insurance in case something unexpected happens so you’re not stuck paying huge sums of money out of pocket.
Make sure to reevaluate your insurance policies such as life (health and disability), home (auto and renters), and general liability coverages to ensure you are getting the best coverages and prices out there.
Also, consider long-term care coverage for yourself and dependents who might need assistance in the future.
Review and Adjust Your Plan Regularly
Keep track of your progress. To successfully implement a strategic financial plan, keep accurate records of your income, savings, spending habits, and investment plans.
Make sure you create a budget!!!!
It’s also helpful to keep track of your progress regularly because it will help you stay on track to meet your financial goals, which is exactly what creating a strategic plan aims to do.
The Bottom Line
Creating a strategic financial plan may seem like an intimidating task, but it doesn’t have to be. It is actually not difficult; you just need to take things one step at a time and be patient.
Take a look at the big picture and ask yourself what you want to achieve in the long run.
This is where creating a strategic plan comes into play because it provides you with a solid structure for defining your goals and then achieving them one step at a time.
Creating financial goals that reflect who you are as an individual can provide inspiration and motivation when things get tough (and they will).
There’s no better feeling than knowing that every day, every hour, every minute – you’re doing something that brings you closer to where you want to be.
The steps outlined in this article will help you get started on the process of creating your own financial plan that can drive results for years to come!
Do you have a financial plan? Leave a comment below and let us know how it has helped you reach your goals (or not)!
