How to Build a Financial Plan (Financial Planning for Beginners)

If you have goals, whether they be financial or not, they probably have a monetary cost.

A financial plan is great for mapping out how your financial situation will change over time and accomplish your life goals.

Do you want to retire in ten years?

Or, maybe buy a house?

Have children? Send them to college?

These are all goals that have a financial aspect to accomplishing them.

Check out our post, if you’re interested in learning more about what is a financial plan.

In this post, we’re going to walk through some of the common steps of building a financial plan.

Here are the steps:

• Write down your goals
• Research the cost of achieving your goals
• Create a model for your financial plan
• Input information about your current financial situation
• Forecast you financial plan

Write Down Your Goals

Thinking through your goals for your life is a good place to start.

Why?

Your financial decisions are going to partially be determined by your goals. 

Saving money to buy a house in a year has a much different investment strategy than saving money to retire in 25 years. 

So, think through the next 40-50 years of your life in 5 year increments.

What are your goals for each five years?

If you want to have children in the next five years does that mean you want to pay for their college in 20 years?

Write down all of your goals and when you want to accomplish them. 

Research the Cost of Achieving Your Goals

Once you have a list of your goals, it’s time to figure out how much it will cost to achieve each of those goals. 

This is going to require some estimation. 

Especially more complex goals like retirement.

This is what financial planning is all about.

Planning for future financial events and expectations. 

Use the internet to develop estimates for each of your goals.

There are plenty of resources out there for understanding the costs of common goals.

You can even reach out to a financial planner who professionally helps people plan the financial aspect of their life. 

Create or Find Your Model for Your Financial Plan

Now that you know your goals and the important information, it’s time to start creating your plan.

You can either build your own model for your financial plan or find a template on the internet. 

Templates are nice because they are usually easy to use and you can simply plug in your information.

They also help you remember important information like assumptions you have to make in your forecast.

But, everyone has a unique situation and unique goals.

A financial planning template has to be pretty general to work for many different types of people.

You could also build your own model for the financial plan in a spreadsheet program like Microsoft Excel or Google Sheets. 

This will involve a lot more work but a good place to start is building your budget in a spreadsheet.

We walk you through the basic steps of building a budget in our post:

How to Build a Budget Spreadsheet

When you build your own financial plan, you do get the ability to create it however you want it. 

You can build it to fit your exact situation and exactly how you think.

If you’ve used both Apple and other products, you’ll know that different computers and phones have different types of interfaces or systems.

When you build your own financial plan, you’re building it to reflect how you think through your finances. 

A template might put your income and expenses first while you prefer your assets and liabilities to be first.

You also have a third option which is a hybrid between the two options.

Download a template and copy or rebuild the stuff that you like and build out the portions that you still need. 

Input Your Current Financial Situation Information 

After your model is built, you should put in all of your current information.

You can also do this while building your model.

It can help to do both at the same time when you’re building your financial plan spreadsheet because your financial information can help you think through what you need in your model.

What information do you need to input?

• Total Income
• Total Expenses
• Net Income
• Where you’re saving money
• Assets (Investments, Property, etc)
• Liabilities (Debt)
• How much you’ve paid to debt balances from your expenses

These are some of the basic data points that you need to input into your financial planning spreadsheet. 

There may be other pieces of information related to your unique situation too.

Forecast Your Financial Plan

You have your goals. Check

You have your model. Check.

You have your current information. Check.

Now, it’s time to forecast and figure out how you’re going to reach your goals. 

Planning your financial situation over time comes down to areas.

1. Forecasting your finances
2. Forecasting accomplishing your goals

Forecast Your Earnings, Expenses, and Savings

For as long as your financial plan lasts, you need to forecast how your income, expenses, and savings will change over time.

You can start in other areas but this seems to have the biggest impact on your financial situation.

Here are some questions to answer as you’re estimating your future finances:

How much are your earnings going to grow?

What is going to happen to your expenses over time?

Where are you going to put your net income – your extra money?

Are you going to pay off all your debt first? 

For your savings, where are you going to invest it?

How might your taxes change throughout life?

As you can see, there are a lot of tough questions that involve making a lot of estimates. 

While there’s a chance of you getting the assumptions wrong for long-term estimates, it is okay.

Most financial plans get a lot of stuff wrong, even in business.

But, apart of building a financial plan is simply understanding the possibilities that may unfold as you progress in life. 

Incorporating Your Goals

It may be easier to incorporate your goals as you go or it may easier to build everything else out and then go back an input your goals.

It is totally up to you.

Personally, we like to go back and create different lines for our goals so that we can see everything laid out in the spreadsheet. 

When you’re incorporating your goals you’re essentially figuring out how you’re going to pay for them.

Here is an example:

If you want to buy a house in 4 years and you need a $50,000 downpayment, how will you save for that downpayment?

Does it involve spending less money? Or, paying less to your debt over the next four years?

If you don’t already have $50,000, you have to figure out how you’re going to turn your net income into $50,000 of savings.

What if you can’t save the $50,000 in four years?

Do you push it another year out? Buy a different house with a smaller downpayment?

This is what financial planning is all about. 

Final Thoughts

Building a financial plan is an extensive process.

It is going to take some time to figure it all out.

But, try not to be overwhelmed by the process.

Don’t expect to finish it one day.

Try to break it up into multiple steps over a good period of time like a month or a few months. 

And, be ready to revise it once you’ve finished your financial plans.

Life changes. 

We’ve made one financial plan one year and completely changed it the next year.

But, there is also the great feeling of getting one year closer to your goals.

It’s a great feeling when you’ve saved more than you expected or paid off more debt than you expected.

And, it’s also humbling when you don’t meet a target in your financial plan.

It means going back to your forecast and figuring out a financial plan so that you can reach your goals.