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How to Make a Financial Plan

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Learn how you can make the most effective financial plan for your lifestyle

It’s often been said that a goal without a plan is just a wish. And I can definitely attest to that …

My whole life, I wanted to become financially independent. But in my early 20s, I had no idea how to get there.

I thought that working hard and saving a small percentage of my paycheck every two weeks was going to be the way. But then I started reading the blogs of people who had actually accomplished this and determined I was lacking one major thing … a plan!

Whether your goal is to get out of debt, buy your first home, or start your own business, it will never become a reality until you layout a clear path for how you’re going to get there. Here’s how to make a financial plan and make your dreams come true.

Start with “Why?”

Before jumping straight into the nuts and bolts of your plan, start by asking yourself a much more important question: Why?

  • Why do you want this?
  • What’s the reason behind your goal?
  • Do you even have a reason for doing what it is you think you want to do?

The more I really thought about why I wanted to become financially independent as early in life as possible, the more I discovered that it had nothing to do with not working or early retirement. My goal was centered more on the idea of being secure and ready to handle anything that life could throw at me financially: A job loss, sickness, accident, new opportunity, etc.

That was my “why” and what motivated me to stay true to my financial plan. But your why might be totally different. Maybe you:

  • Saw your parents struggle financially and never want the same thing to happen to you.
  • Know someone who worked until the day they literally died, and want to spend your golden years differently.
  • Just want to have more time to spend with your children before they grow up.

Your reason is up to you. What’s important is that you find yours and make it your focus. Let it be the thing that guides you along your path and helps you stay the course, even when you hit bumps in the road.

What’s Standing in Your Way?

Now that you know why you want to achieve your financial goal, the next question is to ask yourself is why haven’t you accomplished it already?

In other words: What’s standing between you and your goal?

  • Are you not saving enough?
  • Is your timeline unreasonable or unrealistic?
  • Are you stuck in debt?
  • Do you need capital to get a business started?

When I thought about what it would take for me to become financially independent, I knew the key was to save and invest as much money as possible over the next 15-20 years. So time standing in my way, but there wasn’t really much I could do about it. Instead, I choose to focus on the things I did have control over, such as:

  • How much money I was saving every month
  • What expenses I had and how much I was paying for them
  • How much money I was earning, both from my primary job and side hustles

Depending on what your financial goals are, you might find you’ve got similar problems:

  • You’ve got a bad habit of spending too much money
  • You’ve got too much debt that’s sucking up your monthly budget (such as student loans)
  • You don’t know anything about investing

The best way to deal with an issue is to first acknowledge that it exists. By knowing which aspects of your situation are causing you the most trouble, you can fight back by tackling the ones that are within your control. That will help you to gain the most traction and achieve results more quickly.

How Will You Get There?

Now here’s where the heavy lifting begins …

To create your financial plan, you need to identify which specific habits you’re going to change or actions you’re going to take. For instance, you might consider:

  • How are you managing your expenses currently? Are they all paid on time (and hopefully automatically)? Are you paying any unnecessary interest or late fees?
  • Are you optimizing your savings by using tax-advantaged retirement plans like a 401k or IRA? Are you getting your full 401k employer matching?
  • Could you be freeing up cash flow by eliminating any high-interest debt? Have you tried the debt snowball or debt avalanche methods?
  • Is your nest egg growing fast enough to meet your timeline? Could your money be better invested for a higher rate of return?
  • Are you earning as much as you believe you’re worth? Are there any higher positions at work or opportunities for advancement? What about turning your free time into money by taking up a side hustle?

Write down 1 to 5 detailed steps you’re going to take, and how this will bring you closer to your goal. Remember, those actions that will help you overcome your obstacles are the ones that are going to be the most helpful.

When I think about my own financial plan, my original goal was to save up to the IRS maximum limit for our 401k and IRA retirement plans. My wife and I carefully reduced our spending and did everything we could to increase our incomes so that we can take full advantage of our retirement accounts.

It wasn’t easy, but over time we got there. And that meant saving almost $50,000 per year towards financial freedom!

Learn if your financial plan is working.

Is the Plan Working?

Your financial plan isn’t something that’s meant to be written once and never looked at ever again. It should be something you’re reminded of all the time!

How do you do that? By tracking your progress. Review your situation every week, month, and year to ensure you’re on the right track and not just wasting valuable time.

To make sure we stay on track with our retirement plan contributions, I check our budget weekly. I’ve personally found that by doing this I can correct small problems before they get too big and out of control.

Tracking your progress is easier than you might think. You could write it down, map it out in Excel or Google Sheets, or even use an app like Mint or Pocket Guard. Whatever your favorite method is, what’s important is that you follow-through and always know what’s going on with your finances at all times.

If things aren’t working out the way you thought, there’s no shame in reaching out for help. Seek out the assistance of a professional financial planner or adviser who can help you figure out where things are going wrong and help you to navigate your way through.

Final Thoughts

You may have goals, but they will never be realized until you put together a plan for how you’re going to achieve them. To make your financial plan, you need to:

  • Identify why you want what you want.
  • Determine what’s standing in your way and what’s within your control.
  • Pick 1-5 specific actions that will help you get to where you want to be.
  • Monitor your progress regularly.

As they say, there’s nothing better than when a plan comes together. And speaking from experience, that’s especially true when it comes to watching your financial plan take on a life of its own.

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