How to Make a Financial Plan – 10 Steps Guide to Creating a Financial Plan

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Making a Financial Plan
A financial plan helps us stay on the same page with our money and other areas of our lives.

If you want to make a financial plan, then this 10 step plan will make it a little easier for you to work through the vast and complex issues at hand. From budgeting, to forecasting, to understanding debt and insurance, sometimes money issues can feel overwhelming! But at the core, putting together a financial plan does not have to be difficult.

But What is Financial Planning?

A financial plan is a comprehensive strategy of your current finances, your financial goals and any directions you’ve set to achieve those goals. Broadly speaking, financial planning means outlining specific goals you want to achieve with your money and outlining the steps you need to take to reach them. Financial advisors at A&I are professionals who help people create a financial plan, then put it into action. Good financial planning should align your money with your goals, values, relationships and all that means the most to you. Planning for your financial future begins with goal-setting, works through the math, prioritizes your spending and saving. A well thought out financial plan provides you confidence in your current situation and your future.

A financial plan is about more than just saving and investing. It’s a plan that helps you navigate your short, medium, and long-term financial goals towards a vision of your future. Understanding all of the elements that go into your plan will help you stay on track.

Let’s get started with step by step guide on creating a personal Financial plan:

1. Set Your Financial Goals

One great way to begin your financial plan is to start dreaming. Set some goals. Where do you want to be? What do you want to be doing? Write down your goals and then put some dollar signs beside them. Figure out how much it costs. There will be expensive one-time purchases as well as ongoing costs. Some will be expensive, some will be inexpensive.

After you are done dreaming, then you want to get real. Your current budget is a great place to start. Write it down. Sum up your monthly expenses. We will use that in the next step. But before we get there, ask yourself an important question. Are you spending your money where you want to spend it? Prioritize the items in your budget. We will come back to that in a later step.

Budgeting and inflation2. Plan for emergencies

When you have a handle on your financial inflows and outflows, then you want to start to accumulate enough money to ride through an emergency. For instance, you might have a medical emergency that makes it difficult or impossible for you to work. As a general rule, you want to keep at least six months of your expenses in emergency funds. With this money, you are not going to invest it to get a good return. Instead, you are going to put it into a safe place that you can get to quickly. You want your emergency funds to be safe. If you are more conservative, or worried, then accumulate as much as 3 or 4 years worth of expenses in a safe place. 

3. Pay off your debt

Make sure that you are putting your money to work for you and not for a bank or another lender. If you have credit card debt, car debt, student loan debt, mortgage debt, or another type of money that you owe, make a list. You want to pay off the debts with the highest interest rates first. As a general rule, credit card debt is the worst kind you can have. On the other hand, a mortgage may be the least painful type of debt you could own. With a mortgage, at least you have ownership in real estate that may, over time, grow in value. So before you begin a plan to get rich, make sure you are in control of the money you owe other people.

4. Invest to build your savings

As you put together your financial plan, you are going to want to put your investments on autopilot. Setting up a regular contribution to your company 401k or other retirement plan is a great place to start. By learning to live without this money, you are building bigger wealth. Write down the dollars that are going into your retirement plan and send an email to [email protected]. We will send back the future value of these contributions. The numbers are sometimes astonishing, they are so big!

5. Get the right insurance

Now that you have a handle on your debt, and you are contributing on a regular basis to your investment accounts, it is time to make sure you have a plan for the awful things that might derail your entire plan. Life insurance is a good purchase for parents of young children, for people with mortgages and other obligations, fathers, mothers, and more. Another type of insurance, called disability insurance, protects your family in the event you were to become disabled. Usually both types of insurance are available from a large employer. However, often the free market provides more choice and sometimes better prices. So, consider finding an independent insurance agent to help you find the policy that is right for you.

Investment options6. Create a plan for retirement

In this step, we are going to figure out how soon you can retire. We will look at the details around how much you can spend when you quit working full-time. You want to build a vision of your ideal situation later in life. The more clear you are about where you want to be, and what you want to be doing, the more fulfillment you are likely to find. Then, you want to figure out how to pay for it!

Let’s look at two examples. If you want to be surfing, perhaps your costs need to include a home near a beach–a large one-time purchase. Your ongoing costs are very little. On the other hand, if you want a cabin in the mountains that may be inexpensive or crazy expensive–depending on the location! And your ongoing costs could be either low or high. They may be expensive if you plan on paying for your children and grandchildren to visit you every year. 

In any case, you want to put dollars on the ideal situation. Then, you can work with a financial planner to understand how much money it will take to build it. If you save money at the rate you are saving it today, and if you invest for a certain number of years, are you going to hit your goal? This is the purpose of this step in the financial planning process. Here are the data you need to input:

  1. How much income do you want in retirement (today’s dollars)?
  2. How much will you receive from Social Security, pensions etc?
  3. How many years until you receive this income?
  4. How much are you saving per month (year) towards this goal?
  5. How much have you saved already?

The  calculation is commonplace for a professional financial planner. But if you want to try it yourself, it may be a little complicated. Here is what you will do:

  1. Reduce your income need by the amount you will receive in Social Security or pensions. This the income you need in today’s dollars.
  2. Using a financial calculator, increase this amount by inflation–use at least two percent or more for inflation, per year, every year until you retire. This gives you the future retirement income need. 
  3. Grow your retirement savings by your expected rate of return and also by your contributions (and the growth on each contribution). This gives you your future assets.
  4. Now divide your future assets by your future annual income need.

This formula gets you in the ballpark. You will know whether or not you are going to be successful or if you need to change something.

Tax planning7. Plan for taxes

In retirement, often one of the largest costs are taxes. We want to account for the income tax bill while we are working but also consider it later in life. Saving in a retirement plan saves taxes. In a traditional 401k or IRA, you receive an income tax deduction or are able to put in pre-tax dollars. This saves you taxes today, but costs you taxes later in life when you make withdrawals. On the other hand, you may want to contribute to a Roth IRA or Roth 401k. This plan costs you taxes today, but you are able to make tax-free withdrawals in your retirement years. 

Most people save for retirement using tax-deferred IRAs or 401ks. If this is true for you, then you need to increase the amount of your expected retirement withdrawals. You have to pay the IRS! The increase is larger than your expected tax rate. If you are in a 25% tax bracket today, then you have to pull out 33% for taxes. To understand why, let’s look at an example. $10,000 withdrawal causes $2,500 in taxes, but then you have to pay taxes on the $2,500 as well!

Here is the tax formula for retirement. Divide your withdrawal in dollars by one minus your marginal tax rate:

Withdrawal in $$$ $10,000
divided by /
1-tax rate (1 – .25)

In our example, this means $10,000 divided by 0.75 or $13,333 withdrawal to provide $10,000 of after-tax spendable retirement income. Thus, planning for retirement income is very important!

8. Create an Estate plan

After you have your income, your debt, your savings and your retirement plans in place, it is time to plan for your legacy. Who do you want to inherit your life savings? What people or charities mean the most to you? What about your personal objects? A Will is one of the most simple documents you can create to describe your intentions with your assets after you pass away. For modern families, with complicated relationships, many people consider creating Trusts. A trust provides for more complications and nuances with the assets. You can establish rules around how the money can be spent. Additionally, some trusts provide tax advantages.

9. Review your plan frequently

Financial plans change as often as dreams change. The first step in the process is to dream about where you want to be, with whom, and doing what? Well, each one of these dreams could create a slightly different financial plan. As your life changes, make sure to stay in touch with your financial plan to see if things are in alignment. 

10. Stay the course, avoid overspending and learn from your mistakes

Finally, make sure to proceed with confidence. You have done the work. You know what is realistic as well as what is possible. You want to stay the course. As times change, and the news changes, it will be tempting to change your financial course as well. However, unless your personal plans change, your financial plans, and the way you are investing, should not change either. It goes without saying that one of the most tempting of mistakes is over-spending. It is common, but that does not mean that it is easy to avoid. Keep your financial plan nearby in case you are tempted to blow it up with a big fancy something-or-another. And give yourself a break! You are not perfect, but you are improving. Your financial plans will improve as you age and your goals will become more achievable, and more rewarding, as you learn who you really are and who you want to be.


Financial planning aligns your money with your values, goals, relationships and everything that is most important to you. Each financial plan is as unique as the person who owns it. The above 10 steps to build a financial plan will help you become the person you are meant to be: a newer, better more fulfilled version of yourself.

Planning your financial future can feel overwhelming for some, but you don’t have to do it alone. A Financial Advisor at A&I Financial Services can work with you to get on top of all your finances and help you come up with a personalized plan made specifically for you. For more information, contact our office near you:

Denver | Greenwood Village | Littleton | Centennial | Englewood


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    About the author

    Karl Frank, Certified Financial Planner ®, MSF, MBA, MA, is the President of A&I Financial Services LLC, a local business that specializes in wealth management, insurance planning, and retirement planning. Karl cares for business owners and the businesses that care for them. Learn More about Karl.