How to set up a personal finance plan


Personal finance planning allows you to seize control of your finances and work towards your financial goals. Without a plan, you could feel tempted to spend your disposable income every month without putting money away for your future. Personal financial planning involves assessing your current situation and developing a comprehensive plan to ensure that you reach your financial goals, ultimately leading to financial freedom.

If you’re ready to take control of your finances, you should set up your own personal financial plan. In this article, we’ll help you to plan for future financial success. 

Let’s get to the following commonly asked questions:

  • What is personal financial planning?
  • What are the 4 steps to personal finance planning?
  • What is an example of personal financial planning?

Q1. What is personal financial planning?

The financial planning process is designed to help you reach your financial goals through a personalized financial plan. It requires you to look at your current financial situation so you can devise strategies designed to help you reach your money goals, whether that’s to save and invest, pay off credit card debt, or increase your cash flow. 

Having a personal financial plan is essential to your financial future, helping you adapt your courses of action to achieve key milestones such as having college savings, purchasing real estate, or retirement savings. Effective personal financial planning involves strategic wealth management and often requires the guidance of a qualified financial advisor.

Q2. What are the 4 steps to personal finance planning?

No matter what your personal financial plans are, you can achieve them with patience and careful budgeting. If you’re just getting started with taking control of your financial life, here are the four steps to creating a full-proof financial plan. 

  1. Assess your financial situation 

It’s essential to set reasonable short-term goals that will help you reach your ultimate long-term goal. To thoroughly assess your current financial situation, go through your financial statements, including your credit card debt, home loans, and your monthly fixed income (after income tax). This will help you see your ingoings and outgoings, and the disposable income you can use to save money and invest in your goals. 

For an even more in-depth view of your financial situation, assess your average living expenses from month to month and perform an overview of your current monthly budget. Having a detailed insight of your current situation will help with the development of your personal financial planning goals later down the line. 

  1. Set your financial planning goals

Now it’s time to identify your financial goals, for now, and in the future. This will obviously be different for everyone and depends on what you value. Examples include things like getting married, saving money for a house deposit, building an investment portfolio, or paying off debt. Financial advisers often recommend securing emergency funding as a critical component of personal financial planning to help manage unexpected expenses and financial shocks.

To further understand your goals, add a “why” section, detailing how reaching this financial goal will improve your current life and help you with financial independence. You might even want to order your goals from most to least important, so you can prioritize certain goals when you start saving.

No matter how big or small, write every goal down, categorizing them into short-term and long-term goals. 

  1. Create a financial plan

After you’ve established what’s important to you, create a financial plan in order to reach your goal. Use your assessment of your financial situation like your ingoings and outgoings to help you see where to make personal finance changes. A successful personal financial plan should prioritize paying your bills and managing variable expenses to ensure that you can maintain financial stability and achieve your long-term financial goals.

Remember that when making your budget, you need to be realistic about how much you’re able to save every month. For example, if you’re already struggling to make ends meet you’ll have less disposable income to save compared to someone with more money to spare. We’ll take a look at an example of a financial plan later. 

  1. Reach your goals through savings/investing

Once you’ve established your plan, it’s time to put it into action. It’s beneficial to set up a savings account for short-term goals, such as saving for a car or a vacation. For long-term goals, such as if you want to save for retirement or for a house, you’re better off researching investment strategies to grow your funds over time with compound interest. 

In addition to setting up a savings account for short and long-term goals, it's also crucial to establish emergency funding as a part of your financial plan to cover unexpected expenses and prevent financial setbacks.

Q3. What is an example of personal financial planning?

Let’s look at an example of a personal financial plan. 

Linda is 28 years old and earns an annual income of $75,000 per year. Her ultimate financial goal is to buy her first home, however, she also wants to clear her credit card debt and save for a vacation in the summer. 

She starts by looking at her ingoings and outgoings. Linda earns $5,013 per month (after tax) and her outgoings (including rent, bills, food and leisure costs, car payments, credit card repayments, etc) cost $1,750 per month, leaving her with $3,263 per month to invest or save. 

Linda’s short-term goals are to pay off her credit card debt, currently sitting at $4,000, and save for a vacation, costing $3,000. 

Linda’s long-term goals are to save for a house deposit, which will cost $100,000. Linda consults with an investment manager who gives her individual advice on her investment goals.

Linda decides to put $2,000 per month towards her house deposit, and save $1,200 per month towards her short-term goals - paying off her credit card and purchasing a vacation. 

It will take Linda five months to pay off her credit card debt and save for a vacation, and 50 months (or four years) to save for a house deposit. 

Summing up

If you’re interested in financial education and wealth management, then congratulations! You’re on the right track to taking control of your finances and reaching financial freedom. Having a detailed personal financing plan can help you make the right financial decisions and allows you to see the bigger picture when it comes to your life goals. 

If you like this blog post, go to our regularly updated blog for financial advice. Or, check out our article on ‘How to save money fast on a low income’.

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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.

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