How To Create An Easy To Follow Financial Plan
Are you feeling discouraged or overwhelmed by your finances? Do you feel like you just need a financial plan, but you aren’t ready to speak with a financial adviser just yet?
Maybe you just want to be successful at setting and reaching your financial goals.
A financial plan is something that I never thought about until about a year ago. I have pretty much always had some sort of budget, but most of the time I didn’t stick with it.
When I realized that I would need to start saving for a house and a family, I started to research financial planning.
I had a few goals in mind and decided that I would skip the financial adviser for now and just create an easy to follow financial plan on my own.
It took a few months to get everything together because I wanted to make sure that I included everything that was important.
By the time I finished setting my goals and adding everything in a notebook, I was really satisfied with what I came up with.
I have been following my plan since that day and I am on track to reach the long-term financial goals that I set for myself.
If any of the statements above sounds like you, use the following steps to create your own easy to follow financial plan.
Check Your Credit Report
The first step to creating a financial plan is to check your credit report. The reason to do this first is to make sure everything looks correct and get an idea of where you are starting.
You should print out or write down your current credit score and each thing that negatively affects your credit. If you see any discrepancies dispute them right away through each credit agency.
The best way to check your credit report is directly through each of the three big credit agencies. These are TransUnion, Experian, and Equifax.
The places listed above only allow you to check your report once per year, so use them wisely. You can choose to check one big agency per quarter, or you can check them all at once. The choice is yours.
An alternative is to use Credit Sesame. It is free to join and you get a snapshot of your credit at any time. They also offer personal recommendations to help you reach your financial goals.
Get a free snapshot of your credit today!
Checking your credit is very important. The credit score is not the end of the world, but it will help you tailor your financial plan to fit your situation.
Track Your Spending
The next step in creating your financial plan is to track your spending. It is a tedious task and it could take up to 3 months to get a clear picture of your daily spending.
Tracking your expenses means making a physical note of every purchase that you make. At the end of each month, break down all of your purchases into categories. You want to see what percentage of your money you are spending on each category.
Some people enjoy recording their purchase with a pen and paper or using their bank statement every month. If you prefer to use an app, I recommend using You Need A Budget (YNAB).
YNAB is a budgeting software that imports and categorizes each of your transactions. It also has a reports function that displays your categories and percentages. All of the work is basically done for you.
Choose the tracking method that you like, but remember to be consistent. During the tracking phase, don’t change up anything about the way you spend your money. You want to get a realistic picture of your finances.
Write Down Your Goals
No financial plan is complete without goals. Now that you have your credit report information and know your spending habits, it’s time to create some financial goals.
What things would you like to accomplish with your money? Are you trying to purchase a car or a home? Do you want to increase your savings? Is it time to increase your retirement funds?
Ask yourself where you want to be 5,10, or 15 years from now. Be as specific as possible. When you have a few ideas, go back and figure out why you want to accomplish each goal.
This will show you whether you really want to reach this goal or if you need to dig a little deeper.
Create up to 4 financial goals for yourself. Write them down so they feel real to you. Make sure that you can easily measure these goals.
Don’t say things like “I want to buy a house”. Instead, say “I want to save $50,000 to purchase a home by April 2019”.
This goal is specific and easy to measure. Your goal should also have an expiration date to add a sense of urgency.
Create big goals, but break them down into smaller, more manageable chunks. You don’t want to get frustrated. You want to succeed.
Take your time when creating your goals. The goals are the main focus of your financial plan because they are what you want to accomplish while on the plan.
Create Your Budget
Your budget is going to set the tone for your financial plan. The purpose of the budget is to tell your money where to go.
I’m sure most of you have had a budget at some point in your adult life. It probably included predicting the amount of money that you would spend on things each month.
I want you to throw that method out the window. A good budget has no room for predictions. A good budget is based on facts.
That means that you only budget money that you have right now. If you only have $200 in your bank account, you budget those $200. Figure out exactly what you need these $200 to do before you get paid again.
When you get paid, you want to budget your whole paycheck down to the penny. Then, when you spend money or make purchases, track these transactions in your budget as well.
This type of budgeting is called zero-based budgeting. It takes the guesswork out of the budget and allows you to see exactly how much money you are saving and spending each month.
I know a lot of people don’t have the time or energy to track each transaction, so download an app to your phone that does it for you.
There are tons of zero-based budget apps out there, but as I mentioned before, my favorite is You Need A Budget (YNAB).
Try this app free for 34 days to see if it fits your needs.
If you aren’t currently using some sort of budget, it will take you about 3 months to really learn your spending and saving habits, so stick with it.
Create An Easy To Follow Financial Plan
Now that you have gone through the steps above, its time to actually create your financial plan.
I like to use a notebook and pen for my plan, but feel free to create your plan electronically if that’s what you prefer.
On the first page of your plan, you want to create a contract for yourself. You will want to include your name and the terms and length of your financial plan.
This will hold you accountable and allow you to measure your results.
On the next page, write down your starting credit report information. You will want to see your credit score and any outstanding obligations from your report. Leave room for quarterly updates.
When you have that done, write down your current spending and saving habits and what you will do to improve them throughout the duration of your plan.
Next, you will write down each of your financial goals on a different sheet. Along with your goals, you should also write down how you will accomplish each goal.
Leave space on the page for quarterly (every 3 months) check-ins.
Lastly, include a sample budget. If you have improvements that you would like to make to your budget, write those down as well.
Each quarter, add a sample of your current budget to ensure that you are on the right track.
That’s it, you now have an easy to follow financial plan!
The Bottom Line
Your financial plan is a workable document. You are free to make changes as you see fit. Don’t get discouraged if you don’t see improvements as quickly as you would like.
Sometimes dealing with money takes time. Often times, you won’t see much change for a year or more. That’s why this is called a financial plan.
Stick with it and eventually, you will reach each of your goals. Then, you can start the process all over again with new goals!
Let me know in the comments if you have ever created a financial plan. Did you stick to it?
Great post!! Love these suggestions!
Thanks for reading!