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How to create a financial plan

How to create a financial plan

November 02, 2023

A written financial plan makes you more than 2x more likely to achieve financial freedom. Here are the basics of what to focus on:

1. Make a list of your goals.

    • What are you saving for and why are those things important to you?
    • Spend time with your spouse to help understand where you agree and where you may disagree.
    • Attach a dollar amount and or timeline to each of those goals:
      • Save X for college starting in 2032
      • Retire at X age
      • Down payment for a house in 2025, etc.

 2. Calculate your net worth.

    • You do this by adding up all of your assets and subtracting your liabilities. That which gets measured gets accomplished.
    • Update at least annually to make sure you are making progress.

 3. Focus on cashflow.

    • Budgeting is great, but most people are not great at it. I am a believer in reverse budgeting. First, figure out how much you make per month, after taxes. Next figure out what your fixed costs are (rent, car payment, utilities, etc.). Assuming you have money left over after fixed expenses are covered, the next step is to decide where your money should go. (cashflow waterfall for ideas)

 4. Review your investments.

    • Is your money invested in a way that supports your goals?
    • Are you using the right account types?
    • Do your investments align with your time horizon (when you will spend the money)?

 5. Review your insurance.

    • Do you need life insurance?
    • Do you have disability, LTC insurance? Do you need it?
    • Is it time to increase your umbrella insurance?

 6. Review or establish an estate plan.

    • If something were to happen to you is there a plan for what happens to your assets?
    • If you have young kids, who will help take care of them?

Everyone's situation is unique. But, following these six steps will put you well on your way to creating a financial plan. And, maybe more importantly, sticking to it.