7 Steps To Creating A Personal Finance Plan For Your Future

Shawn Manaher
Shawn Manaher
Updated on October 17, 2022
what is a personal finance plan

You might be at a phase in your life where you are thinking, “what is a personal finance plan?” This means you have come to a time in your life when you are ready to become financially stable and prepare for the future. 

Studies have shown that 95% of millennials are not saving the recommended amount. Sometimes this is unavoidable, but other times it can be sorted out by having a good financial plan. 

If you think you are not saving enough for the future, you need to start making a financial plan as soon as possible. A solid plan can help you work closer to retirement and can make sure you have a high quality of life during retirement. 


How To Create a Personal Finance Plan

If you’re ready to make sure you are prepared for the future, here are the top steps to follow when creating a personal finance plan. Some are easier than others, but they are all necessary. 

Step 1: Determine Your Financial Standing 

The first thing you need to do is determine your current financial standing. How well your finances are will depend on how you manage your money. Knowing where you’re starting can help you determine your weak points and how to make them better. 

Making a financial plan can be similar to how you would make a fitness plan. Determine where you are starting and where you want to get to. 

If you aren’t sure of your current situation, you can first determine your net worth. Finding your net worth is simple. All you need to do is subtract your liabilities from your assets. Assets are what you own, and liabilities are what you owe. 

Assets include things like your car, home, and land. Liabilities include debt, mortgages, and loans. Assets also include all the money you have in savings and checking accounts. Some people also include their retirement accounts as assets. 

If your net worth is positive, you are already on track for good personal finance. Your net worth will change every time you take out a loan or buy a home, so you need to make sure you are evaluating it periodically. 

Part of knowing where you stand also includes tracking your spending. You need to get a good picture of how much you earn versus how much you spend. Cash flow is important in terms of your financial health since a positive cash flow means you are moving in a good direction. 

A negative cash flow means you are spending more than you are taking in. You will need to make some major life changes so you can begin to save money every month rather than being in a negative balance. 

Positive cash flow means you are making more money than you’re spending. This is the first step towards achieving your financial goals. 

Step 2: Make and Update Your Budget 

A budget is one of the main ways you can make a good financial plan. Budgets also help you save money and allow you to reach long-term goals easier. A budget needs to be used and stuck to thought in order to work. 

There are many ways to make a budget. Some people write their budget down the old-fashioned way on pen and paper, and others use a budgeting app or online spreadsheet. You can do whatever works best for you. 

When people make budgets, they do the common method of 50/30/20. 50 percent of your income needs to go to essentials, 30 percent can go towards wants, and the other 20 percent goes towards savings. 

By following this budget rule, you’ll find that your finances become simple, and you can easily reach your financial goals. Remember, though, that as your finances change and your financial situation changes, you will need to change your budget to reflect your changes. 

If you find that your budget is not meeting your financial goals, you will need to change it. Every budget will include something different, but here are the basics that most people will include:

  • Charity 
  • Personal care 
  • Clothing 
  • Entertainment 
  • Pet costs 
  • Car registration and lease 
  • Bank account fees
  • Prescriptions 
  • Travel and Transportation 
  • Subscriptions and memberships 
  • Emergency funds 
  • Household maintenance fees 
  • Dining out 
  • Groceries 
  • Rent 

Feel free to add anything else you think you might need, as you know your personal life and finances more than others. Most people find that using budgeting apps is the best way to plan their finances, so you can give an app a try. 

Step 3: Pay Down Your Debt 

Paying off debt is needed to make sure you have ultimate financial freedom. Giving your monthly debt payments can be hard, especially when you see how much money you could have to give to other things. 

However, paying off debt is a must. You need to prioritize debt payments even if you want to send money on other things. One of the best ways to pay down your debt is by using the debt snowball method. 

In this method, you will prioritize the smallest debts first. This will help you get rid of debt one by one, and it can be extremely motivating to see some of your debts disappearing. You will also see instant progress, which will continue you to keep going on the debt relief journey. 

You can also use the debt avalanche method. In this method, you will make minimum payments on all loans. You can then use the extra money in your budget to pay off the loan with the highest interest. 

This method will save you the most money in interest payments. Interest is usually what makes it so hard to pay off debt, so paying off high interest can save you a ton of money in the future. 

Paying debt is often the biggest part of a personal finance plan because your debt will affect you when it comes to getting loans and even getting jobs. Paying debt can increase your credit score and ensure you are able to receive funding from lenders for things like cars and mortgages. 

Step 4: Prepare for Retirement 

Even though retirement might be far off into the future, it’s important to start saving for it now. Considering all your goals for the future is extremely important. The longer you plan for it, and the more you work towards it, the easier it will be to save. 

If you start saving for retirement in your 20s, you will have more than 30 years of savings once you are done. The more years you spend saving, the more money you can have to live prosperously in the future. 

If you are already older and want to save for retirement, you need to put more money into your retirement fund than if you are younger. This is because you have fewer years to save and fewer years left to work. 

The best rule to follow is to save 10 to 15 percent of your post-tax income. This will give you a good bulk of money for retirement. 

There are many different types of retirement funds to choose from including:

  • IRA: An IRA is an individual retirement account that you open on your own and it’s not tied to your employer. All the money you put into this account is tax deductible. It’s tax-deferred though which means you will be taxed on the money you withdraw it. 
  • Roth IRA: This is a type of individual retirement account you open and fund yourself. You will be taxed for all the money you put in starting from the time you open the account. You will not be taxed at the time of your withdrawal though. 
  • 401(k): This is a basic type of retirement account offered to employees from a company. Depending on your employer, you will also be able to make post-tax or pre-tax Roth 401l contributions. 

Step 5: Estate Planning 

Estate planning can be overwhelming, and it’s often not fun to think about. However, it’s a very important part of the question, “what is a personal finance plan?” You need to make sure you are thinking about what will happen to your assets once you are gone. If you have children or a spouse, you need to think carefully about how to allocate your assets to them. 

When you’re estate planning, you will need to list all your assets and write a will. You should also state who has access to the will and the assets. Estate taxes can sometimes be up to 40 percent which means you also need to have a plan for how to pay these taxes. Leaving such a large tax burden on your family is never a good idea. 

When estate planning, you often need a lawyer to help you. They can outline your estate plan and help you sort out your assets and taxes. Here are some tips when working with a lawyer for estate planning:

  • Use an estate planning specialist. Not all lawyers work with estate planning, so you need to find someone who has good expertise in this area. They will know more than a lawyer who works in different areas. 
  • Talk about the legal fees before the work begins. Every lawyer charges different fees, so you need to be aware of them before you start. Some charge a flat fee while others will ask that you pay hourly. 
  • Always use a lawyer you trust since they will have access to look at all your assets and money. You need to feel comfortable sharing personal matters with them. You might want to ask around to others for lawyer referrals. 

Step 6: Make Sure Your Assets are Insured 

When you have many assets, you need to start thinking about insurance for them. Adding insurance makes sure that your assets are protected in the case of an emergency. Insurance is not the most fun thing to think about, but it’s necessary to keep your finances secure. 

Insuring your assets is a defense financial move. Insurance also puts your mind at ease in the event that you come into difficulties that could otherwise ruin your finances. 

Here are some insurance types to keep in mind and consider. All of these help to protect your assets from damage. 

  • Life insurance goes along with estate planning. Life insurance gives your beneficiaries the funds they need to live a healthy life once they have passed. 
  • Homeowners insurance protects your home from crime and disaster. In some places, homeowners’ insurance is required. Even if it’s not, you should get it to protect your home. Your home is probably the most valuable asset you own, and you need to protect it. 
  • Health insurance protects something even more important than your home: your life. Health insurance will help to cover unforeseen medical expenses and help you get the care you need when you are sick or need surgery. 
  • Auto insurance protects you from costs that can accrue when you have damage or theft to your car. Auto insurance is required in all states, and you should not drive without it. 
  • Disability insurance will reimburse you when you have lost income due to illness or injury that you might get from not being able to work. 

If you aren’t sure how to get insurance, you can speak with a financial planner who can review the best options for you based on your assets and income. 

Step 7: Change & Update Your Financial Plan When Needed 

Your financial plan will not stay the same throughout your entire life. There are some life changes that can happen that will cause you to reevaluate your financial plan. It’s okay to change your goals and continue making new ones. 

For example, if you receive a promotion in your career and are making more money, you might want to consider putting more towards retirement. Once your career is well established, you will have more money to contribute to retirement and other investments for your future. 

Staying up to date with your financial plan also keeps you accountable. You might need to change things when you get married or when you have another kid as these huge life changes can affect your financial priorities. 

Once you are married, it’s also a good idea to review your financial plan with your spouse. You can also have loved ones and relatives help you with your financial plan if you aren’t sure if you’re on the right track. 

Don’t be afraid to make new goals and review your financial plan whenever you see fit. 


Hopefully, this guide has helped you learn what a personal finance plan is. Personal finances might be hard to think about, and it might feel stressful or overwhelming. However, the sooner you begin to track your finances, the easier you can save money for the future. 

Your financial goals will change throughout your life as you get married, have kids, and get closer to retirement. By tracking your finances and updating them when needed, you can create a future not only for yourself but for your kids. 

You can also use online software like apps and spreadsheets to help you write out your financial plans and stay on top of them.

Shawn Manaher

Shawn Manaher

Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author.

He's been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.

He loves to share his personal finance tips and money management wisdom with others to help them find financial freedom.
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