How to Prepare Your Own Financial Plan

It is easy to prepare your own financial plan if you determined to build a solid financial foundation. What is a financial plan? We start by defining financial planning as a process of setting life’s goals and identifying strategies to meet these goals. On the basis of this definition, your own financial plan is your road map towards attaining your desires in life; and desires often needs funding.

A financial plan answers three basic questions:

  1. Where do you want to be? What are your desires and aspirations in life? How much do these aspirations cost?
  2. Where are you right now? What is your current financial position?
  3. How do you get to your aspirations?

Preparing your own financial plan need not be a daunting task if you follow the basic steps outlined here.

Having your own financial plan is important to one’s financial success regardless of your current financial state. Here are the basic steps you need follow to come up with your financial plan:

  1. Establish your personal financial goals. Financial experts usually recommend to start by taking stock of what you have. I recommend starting with what you want, not with what you have. You will get stuck or demotivated to move on.
  2. Assess your financial position using two basic tools: (1) Net worth, and (2) income/cash flow statement.
  3. Prepare your financial strategy by following the 6 steps to a solid financial foundation in described in my homepage
  4. Monitor your progress. There is a need to track down changes in your assumptions and adjust your plan accordingly

So remember these steps to be able to prepare your own financial plan. The first step in creating your own financial plan is laid in the page financial goals setting. The succeeding steps are detailed below:



How to assess your financial position.

  • Compute your net worth by deducting total liabilities from your total assets. This will give you an idea if you have enough assets to cover liabilities.
  • Prepare your own cash flow statement to identify your income sources and determine where your money goes. An analysis of the two financial statements would help you create your money management strategies. They will guide you what expense items to cut down or do away with and what assets can be liquidated to pay off debts. Generally, the financial statements will give you an idea what disciplinary measures you have to implement to take you to your goals. The links at the bottom of the page will bring you to the tool to determine your net worth and to the income and expense worksheet.
  • Add up the cost of your goals by category and by time frame and scale down/make adjustments to your financial goals.

How to prepare your financial strategy:

  • Increase your cash flow (link to cash flow strategies): increase income, reduce expenses or both. If you have come up with a savings goal, apply the pay yourself principle. In effect, pay for your financial goals.
  • Get proper protection. It is basic to a solid financial foundation to have a long term health care.
  • Eliminate debt and set up emergency fund
  • Identify investment options. First off, you should learn how money works. It may be good to consult a financial adviser to help you come up with an investment strategy but there’s no better alternative if you do your own due diligence: become your own financial advisor.

How to monitor your progress:

Over time, there will be changes in assumptions and conditions such as your needs and wants, earnings, expenditures, prices, and investment returns among many other factors. There is therefore a need to track changes so you can revise your financial plan accordingly. Prepare your personal income statement on a periodic basis. Monitor the performance of your investment portfolio so you can make timely modification of your investment strategies.