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Are you ready to make over your financial future? The first step is to write a personal financial plan.
I know, it sounds kind of scary, but I’m going to walk you through the basics.
Every financial plan is different and will include different variables.
I used to do these long-complicated plans that included every single aspect of my financial life. I quickly realized that it was overkill. When they are too complicated you lose focus and quite frankly, they just don’t happen.
Now my personal financial plan is super simple. I focus on these 5 areas:
- Net worth
- Emergency Savings
- Retirement Savings
- Short-Term Savings goals
Every year, I sit down and calculate my current value in each area and then set goals as to where I want to be in 1 year, 5 years, 10 years and 30 years. For the emergency fund and short-term savings, I spread out my goals over a 12 month time period.
If you want to create a personal financial plan you are welcome to download my Free PDF Personal Financial Plan Template.The best personal financial plans are simple, simple, simple.Click To Tweet
Personal financial plan example
Here is a sample of what I do for each of the 5 areas mentioned above:
This example is for my emergency fund. I’m currently underfunded at $9,500, my goal is to be at $15,000 by the end of the year. The difference is $5,500 which means I need to save $1,374 per quarter to hit my end of year goal.
I go through the same process for my net worth goals, debt reduction, retirement and whatever short-term goals I’m working on.
My personal financial plan template makes it easy for me to quickly visualize the changes I’ll need to incorporate into my budget to hit my goals.
Your net worth is calculated by adding up all of your assets and then subtracting your liabilities. It should look similar to this (but with numbers):
The important thing is to make sure that you correctly value your assets. Just because you love your car doesn’t mean that it is in excellent condition on Kelly Bluebook. Be realistic. Your goal is to get an accurate value of your net worth, not an inflated valuation based on the original price of an item.
Once you have determined your net worth it is time to set some goals.
If you have a negative net worth, I would focus on debt reduction to get the most bang for your buck.
If you have a positive net worth, then review your assets to see where you have holes. For example, if you have a lean emergency fund, you may want to prioritize your emergency fund this year and then next year focus on retirement planning and short-term saving goals.
If you have already calculated your net worth, you should have your total debt easily available.
Hopefully, this number won’t shock you too much.
Even if it is a low number, I highly recommend focusing on debt reduction. The sooner you have debt out of your life the happier you are going to be.
If you need help reducing your debt check out these posts:
- How to start your debt reduction journey
- How we paid off $293,000 of debt in five years
- How to pay off debt with no money
Money Saving Goals
I break my saving goals down into my emergency fund, retirement saving, and short-term goals.
My top priority is always my emergency fund. I like to keep 3-6 months in my account at all times. Once that is funded then I begin funding my retirement and then begin working on short-term goals.
For example, my husband and I have three paid for vehicles, but all of them have over 200,000 miles. It is just a matter of time until one of them needs to be replaced, so this is my number one short-term savings goal right now.
Related Post: Why it pays to run your cars into the ground
Keep your personal financial plan template simple:
I love personal finance and have literally hundreds of spreadsheets on my computer detailing every aspect of our financial life. They are great, but I always find myself coming back to the basic when I’m preparing my personal financial plan and goals each year.
As much as I want to include every minor variable that may happen in my life, it doesn’t work. By focusing my planning on these five areas, I’ve found that I can focus my energy on specific financial goals that I know will have a huge impact on my ability to generate additional wealth.
Take a few minutes and download my Personal Financial Plan Template. If you don’t have time to fill it out now, set a reminder on your phone. It is totally dorky, but trust me, this really is worthy of setting a phone reminder for. Once you fill out the forms, pin them up in your office or on your fridge to remind you of your goals.
Creating a personal financial plan really can be life changing!
I should mention that all of this is tied to the fact that you have to create a budget. You can make all the goals in the world, but unless you are including your financial goals in your budget and actively working towards them every month you won’t succeed.
If you need help with your budgeting I highly recommend this book. It is seriously my favorite budgeting book.
I’ve also written those budget related posts that may help:
- How The Two Unbreakable Rules of Budgeting Will Change Your Life
- How Budget if you have an Irregular Income
- How to Set Up A Percentage Based Budget
PS. If you are struggling to control your spending check out my new class – How to Find and Eliminate Spending Leaks In Your Budget.
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