Example of a personal financial plan

You have probably heard about many benefits of having a personal financial plan. But if you haven’t yet put much thought into the question on how to pursue your long-term financial goals by taking your spending under control, you may not know where to start. Many of us think that it is an overwhelming task, but will definitely agree that it is not, after seeing this simple example of a personal financial plan (for dummies). There is nothing too complicated in this task, but just having your financial goals structured, makes them more achievable, and thus gives you much more clarity about your future.

You may not find an example of a personal financial plan asking among the people you know, but it does not mean you can’t be the first to start this excellent tradition. There may be some stress and negative feelings associated with money, so it can be easy to put off your planning and just continue to live day-to-day without thinking too much about your financial future. Sometimes people are simply not aware that it is worth to dedicate their time to financial planning. But those who tried to do it are usually very satisfied with the results. So well done, if you clicked on this article to see an example of a personal financial plan because the first step is already completed.

The good thing is that personal financial planning doesn’t have to be difficult at all. In this article, you’ll see that a good plan can actually be quite simple. It doesn’t have to chart out exactly where every single dollar will go for the next twenty years, and in fact, it shouldn’t. A good plan has the flexibility to account for changes in your circumstances, your goals, and the unexpected events that inevitably happen to all of us.

Whether you dream about buying a house, starting a business, taking a unique vacation, or anything else, financial planning is an essential step toward making those dreams into realities. A financial plan is also vital for efficiently paying off debts and saving for retirement. Let’s look at each step in an example of a personal financial plan that you can follow to feel more confident about your financial future.

Your current financial situation

The first thing you’ll need to do as you create a financial plan is to determine where you are now financially. Whether you already have some savings or you’re living paycheck to paycheck and paying off debt, you’ll need to make a list of all your assets and liabilities.

Assets include cash (your everyday, checking, and savings accounts in your bank, as well as any actual cash on hand), personal property (the value of a house, car, etc.), or other investments such as stocks, bonds, and pensions.

Liabilities include student loans, credit card balances, car loans, mortgages, medical debt, and any other debts you currently owe.

As you list all these, you can gather up all of your financial documents so that they are all easily accessible. When referencing your assets and liabilities, it is better to look through the actual documents to make sure the planning is precise. Moreover, carefully looking through the hard or digital copies of your documents may help you to recall some particular details that you missed.

If you want to calculate your net worth, it’s simply a matter of subtracting the sum of all your liabilities from the sum of all your assets. If you end up with a negative net worth, don’t let it stress you out too much—the financial planning will help you set goals and define steps that will help you make measurable progress toward them.

Finally, as the last step of getting a clear picture of your current financial situation, list all your current income and expenses. Start with your monthly/weekly pay, and then list all your standard recurring expenses: rent or mortgage, utilities, internet, phone, entertainment, etc. List your minimum debt payments in this category as well. Then get the best estimate of the rest of your spending. A good way to do this is to look through the past several months of your bank statements so that you get a better average.

Your goals and priorities

The next step in this simple example of a personal financial plan is determining your current goals and the list of your priorities. You don’t have to include every single financial goal you may imagine you’d have in the future, but instead, you need to focus on your must-dos. If you don’t already have some specific goals in mind, start by brainstorming: write down every goal that comes to mind, and then choose the ones that are most relevant to your circumstances.

Here are some examples of goals that you may want to focus on in your personal financial plan:

  • paying off your student loans;
  • saving for a down payment on a house;
  • taking a series of training courses to learn a new skill;
  • paying off the debt from surgery, etc.

Your goals may change over time, and that’s totally fine. It’s essential to regularly revisit your financial plan and reprioritize as circumstances dictate. So, now let’s talk about prioritizing.

Often, your goals seem like they’re in conflict with each other. If you want to both pay off debt and save for a big purchase, can you do both? Usually, it’s all a matter of prioritization. It’s crucial to find the correct balance for you at any given time. For example, paying off debts is undoubtedly very important (because the longer you delay, the more interest you pay), so it usually makes sense to give high priority to debts. At the same time, paying another part of your debt doesn’t necessarily feel rewarding (especially for such large obligations like a mortgage or student loan). So it can be helpful to also prioritize a small rewarding goal like saving for a fun purchase. It is possible to balance your goals in a way that you’re working toward both.

Deciding that you don’t go to a coffee shop can make you five or ten dollars toward your next purchase. Again, and again. When you choose to prioritize, think about how long it will take to reach your goals. Having a mix of long term goals and short term goals can help make it easier to stick to the plan. Completing your short term goals will help you to move forward to your long term goals.

Your budget

The last step (in this simple example of a personal financial plan) is building your budget. You can find many budgeting software solutions to choose from, even budgeting apps for Android and iOS. You can use any of those, depending on your personal preference, or whether you can pay some money for this kind of software or not. Don’t forget that you can also use a spreadsheet to set up your budget, or even opt to a hand-written version, or any other method that works for you. The important thing is not to let figuring out what tools you want to use get in the way. Don’t postpone the day when you actually sit down and start building your family budget. If you are thinking for too long, just begin with the most straightforward option.

The purpose of creating a budget is to make sure that your money is actually going where you want it to go. If you want to put more money toward paying down your debt, for example, that money needs to come from cutting something else. So, generally, it’ll come from reducing the amount you spend in another area, or fully excluding that area from your (monthly) budget.

Your budget will start with the categories that you sorted your expenses into. Many of these are fixed or highly predictable, and others will vary more, but you can still control your spending in these variable categories in a few ways.

One option is setting monthly spending limits on certain categories (or you can use another time frame if that makes more sense for you). This method works well if there are a few areas of overspending that you really want to focus on getting under control. This may help you end up with more money at the end of the month, and you can decide if you want to put that extra money toward paying down debt, put it into savings, or maybe invest it based on how you’ve prioritized your goals.

Another option is to fully assign your income to your budget categories. This strategy requires having a clear picture of how much you’re likely to spend in any given category in the month (or another time frame). If you don’t end up spending all of the money you’ve designated for a category, you can either let it roll over to the next month or move that money into a savings category.

Whichever way you choose to set up your budget, it’s essential to stick with it. Don’t hesitate to make adjustments if you find that it’s not working well after a couple of months, but you need to try hard to stick to your plan. Whether you use this easy-to-understand or more detailed example of a personal financial plan, there is no doubt that you will benefit from taking your finances under control. Once you discover a system that works for you, you’ll find that paying closer attention to your financial situation is interesting and rewarding.

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