What Is Involved in Creating a Financial Plan?

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  • Written By: Jessica Ellis
  • Edited By: Bronwyn Harris
  • Last Modified Date: 24 August 2019
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Creating a financial plan is like building a road map for future financial actions. The major steps involved in creating a financial plan include self-assessment, goal setting, cost and income forecasting, and setting checkpoints to reassess the plan. Financial planning can help set up a budget, determine whether a purchase is affordable, and ensure a routine system that can help a person reach financial goals.

One of the most important steps involved in creating a financial plan is performing a self-assessment. As the starting point on the financial road map, assessment tells a person exactly where they stand as of the present day. Assessment involves measuring how much money is coming in, through investment and income, and how and where it is going out. It will also include an examination of debt and credit score.

Goal setting is often the fun part of financial planning. In this step, a person must determine his or her financial goals. This may include saving for college, paying off debts, buying a house, or starting a retirement fund. Goals may also include time frames and desired amounts reached. Including details such as dates and amounts can help make goals concrete and cut vague areas out of creating a financial plan.


While self-assessment uses factual data, and goal setting relies on setting clear plans for the future, forecasting often relies on a good educated guess. Forecasting is used to create an estimate of future earnings and future costs, based on present-day data. For instance, if a person has a job that he or she intends to keep for at least twenty years, it is likely that raises and promotions will increase salary. Contrarily, if a childless couple plans to have kids, their costs will increase. Forecasting is a tricky step, since it involves some knowledge of statistics and events not easily predicted. Some people consult financial planners or purchase forecasting software for assistance with this step; if simply relying on a good guess, it may be a wise idea to estimate a slightly lower than expected income, and higher than expected costs.

Using assessment, forecasting, and goals, a person can make reasonable estimates when creating a financial plan. A finished financial plan may include short-term goals, such as starting a retirement account and contributing a set amount per month. Medium-range goals might include paying off college, home, or automobile loans. Long-term plans might take years or even decades, and may include large items such as buying a house, generating income through investments, or paying for college tuition. In order to stay on track with goals, it is important to sit down regularly and check current status against the original financial plan.



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