How To Come Up With A Financial Plan Without Visiting A Professional

Today I have a great blog post about how to create a financial plan from my blogging friend Jim Wang. Enjoy! Ever walk out of a restaurant and see a fishbowl at the entrance, filled with business cards? The sign next to it would say “Want a free dinner? Meet with a financial planner!” When…

Michelle Schroeder-Gardner

Last Updated: January 1, 2023

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A financial plan is important, but very few of us have one. It's because we think that we need to meet with a financial planner to get one and who has the time or the money to pay someone for a "plan?"Today I have a great blog post about how to create a financial plan from my blogging friend Jim Wang. Enjoy!

Ever walk out of a restaurant and see a fishbowl at the entrance, filled with business cards? The sign next to it would say “Want a free dinner? Meet with a financial planner!”

When I was younger, I put my business card in one of those fishbowls because who doesn’t want a free dinner?

It turns out that I would have to pay for my dinner with an hour+ meeting with a “financial planner,” who was more sales person than actual financial planner, and I didn’t have a financial plan. I did have a better understanding of how those fishbowls worked though!

A financial plan is important, we all know this, but very few of us have one. It’s because we think that we need to meet with a financial planner to get one and who has the time or the money to pay someone for a “plan?”

The reality is that you don’t. A financial plan is quite simple and today I’ll explain exactly how you can build one all by yourself.

To be clear, I’m not a financial planner. I have no certifications, no formal training, but I’ve met with several and currently work with one. When you work with a financial planner, you do more than just come up with the financial plan, you also execute it. A plan without execution is just a piece of paper!

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What is a financial plan?

In its most simple terms, it’s a plan of your current (A) and future (B) financial states and a strategy for getting from A to B based on your income, assets, and expenses.

In other words, if today you are a single professional who rents an apartment and in five years you want to be married homeowner, a financial plan is your way of figuring out how to get married and buy a house in five years. When you create the plan, it’ll be based on your financial realities, which might tell you that getting married and buying a house in five years isn’t possible!

With a plan, you’ll know. Or at least have your best guess.

To that end, there are three parts – getting your current financial state, mapping out your future states, and then building a plan to get you from current to future.

Related: My top tip is to check out the In Case of Emergency Binder to help you with creating your own emergency binder. This is a 100+ page fillable PDF workbook. The In Case of Emergency Binder was created to remove significant complications from the process and help you actually get your important information ready. The research is done, the workbook is put into easy to follow sections, and everything you need is included. Please check it out here.

 

Mapping out your current state by financial planning

This is a simple listing of your assets and a good understanding of your income and near future income potential. Every month, I keep track of my net worth in a spreadsheet. This gives me a good sense of where our finances are right now.

Every month, I update those figures and maintaining that a monthly snapshot is important because it’s also a check-in on our finances. I review my credit card statements, my bank statements, and double check everything is accurate and correct.

The second piece of your current state is a high level understanding of your expenses. Your financial plan is about charting a path for your future and how you’ll get there through a mix of saving and asset growth. How much you save will depend on how much you earn and how much of it you spend – understanding that today is crucial.

 

Planning your future state(s)

This is the hardest part of the process because human beings are notoriously bad at predicting the future. Working with a financial planner gives you the opportunity to talk out loud about your future plans, something that is difficult to do on your own. I recommend speaking with someone who cares deeply about you, is able to have a frank discussion about money, and is able to give you honest feedback.

Also, don’t think about a single future state but a series of future states. I like to think of our financial future in a series of 5- and 10-year blocks. What do I hope to accomplish in my 30-35 year old block? What do I hope to accomplish in my 50-60 year old block? I want to buy a house in 5-10 years, vs. in 5 years. I want to have kids in 10-15 years, not in 10 years.

I like the idea of blocks because it gives me flexibility and builds that flexibility in the plan. Many people set a goal of “I want to buy a house in five years.” The goal is perfectly fine, but you won’t buy a house in exactly 60 months on the dot. In a few years you’ll start looking on Redfin for houses in the neighborhoods you like. You’ll find a broker, get pre-approved, and go through long and drawn out home buying process which culminates in your new home whenever that process is done. The “five years” timeline is merely guidance, it’s not a finish line.

I like to capture that flexibility by putting it into blocks, instead of setting a date.

Of those accomplishments, what are the future funding needs of those blocks? That’s the real question because the financial plan is about money.

If you are buying a house in five years, how much of a down payment do you need? Your financial plan needs to know because you will want to start saving money.

Let’s think about the hardest savings goal — retirement. If you plan on taking the traditional career arc of work full-time for 40+ years and retire at 65 to a life of leisure, you’ll need to amass a nest egg.

For this, I like to keep it simple. For something 40+ years into the future, you’ll have plenty of time to work on course corrections in 10, 20 and 30 years, when you have a better understanding of your finances. For now, rely on the 4% withdrawal rule, which states that your retirement nest egg needs to be 25X your expenses each year. If you only withdraw 4% of your nest egg each year in retirement, its own growth will support itself until you die.

The math is simple, for each $1,000,000 you save, you will have $40,000 a year to spend. If you believe your retirement lifestyle will require $120,000 a year, aim to save $3,000,000 for retirement.

Let’s keep it modest and say our retirement will cost $80,000 a year – that’s $2,000,000 in retirement savings.

If that number looks big, you can adjust it for any pension or Social Security benefit you expect to receive in retirement. For example, I used the Social Security Quick calculator and learned that I’m trending towards a benefit of about $2,450 a month in benefits. That’s $29,400 a year in benefits, so of the original $80,000 I now need to come up with just $50,600 – or a nest egg of $1,265,000.

 

Planning on Getting from A to B

You’ve done the hard part, now time for the math part.

Your plan is a series of future funding needs – house in 5-10 years, kids in 10-15 years, etc.

Your plan will now help you 1) set how much to save and 2) where you will be saving it so you meet your funding needs.

Let’s take our example retirement goal – $1,265,000 in 45 years.

How do we get there in 45 years? For that, we’ll need a calculator.

I kept the base assumptions (8% investment returns, 3% inflation, retire at 65 and 20 years of retirement income) and it told me that I would need to save $822 a month towards retirement to reach a total retirement nest egg of $1,505,733.

For retirement, I need to earmark $822 a month.

Now I need to do this for all the future funding needs. If I want to save $20,000 for a house in five years, that’s an additional $333.33 a month because I’m going to assume I put that in a savings account, not the more volatile but potentially more rewarding stock market because I intend to use it in 5 years.

If those are my only two needs, I need to save about $1,155 a month. $822 into the stock market for my retirement and $333 a month into a savings account for my house.

Is that doable? That depends on how much breathing room you have in your income and expenses. if you can’t save $1,155 then you may need to find ways to earn supplemental income, cut expenses, or adjust your future plans.

If you are willing to wait an extra year on your house, then your monthly saving needs drops to just $1,100.

If you reduce your down payment, your savings need to meet your goals will also decrease.

By creating a plan, you can now make intelligent choices about your future with hard numbers.

 

Review and Update Annually

Every year, review your plan. The numbers you used from a year ago will have changed. Everything from your funding needs to your income to your expenses to the investment returns, your plan should be adjusted too.

Remember, the goal of all this is to think about your future and to formalize a plan. Accuracy is important but not paramount. If things change, adjust the plan accordingly.

Perhaps you were given a larger than expected raise or received a windfall like an inheritance or a bonus, financial events that can accelerate your timeline. On the flip side, if you experience an accident or emergency that required you to dip into savings, those can affect your plan too.

Don’t over-react, especially on numbers like your volatile investment returns (it won’t be 8% exactly!), but adjust the plan accordingly, especially for funding needs that are within the next 5 years.

Having a plan is important because it helps you make informed decisions. Without a plan, you’re relying on your gut and you will rarely make a good decision with perfect information.

Jim Wang has been blogging about money for over 10 years and most recently writes about personal finance at WalletHacks.com. To get exclusive bonus material and weekly updates, please sign up to receive his email newsletter!

Do you have a financial plan? Why or why not?


Michelle Schroeder-Gardner

Author: Michelle Schroeder-Gardner

Hey! I’m Michelle Schroeder-Gardner and I am the founder of Making Sense of Cents. I’m passionate about all things personal finance, side hustles, making extra money, and online businesses. I have been featured in major publications such as Forbes, CNBC, Time, and Business Insider. Learn more here.

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  1. Amanda-LivingFullyandFree

    This is a great post! You really detail how to move from the beginning to the middle to the end! Preparation and prevention is so important! Thank you Jim and Michelle!

    1. You’re very welcome! ๐Ÿ™‚

  2. You can’t stick to a plan if you don’t HAVE a plan. ๐Ÿ™‚

  3. Plans are so helpful because you must acknowledge what you want and what you are doing about it. I also like numbers and figuring out what I can do, so I’m a little biased.

  4. Aliyyah @RichAndHappyBlog

    This is important to me because I’m all about financial planning but don’t see myself hiring a professional any time soon. I think mapping out the process it’ll take to get from A to B is most useful.

  5. It’s really important to learn this stuff!! I’m so shocked that people don’t take financial planning as serious as they should. Once you learn it, you’re setting yourself up for life. Great advice here!

  6. Great advice. I’m going to print out this post for my 20-something kids (who, fortunately inherited the frugal gene from their dad!)

    1. That’s awesome, I’d love to hear what they think about it ๐Ÿ™‚

  7. I really like that you keep track of your net worth through a spreadsheet. I do the same and I think it helps if you do that first. Once you get all the info needed to put into the net worth tracker and see what the results are, you will be highly inclined to try and make that better.

    Financial planning is a must especially if you have dreams of being financially free someday.

    Good stuff!!

  8. I actually really enjoy my monthly net worth check in. I guess that’s the litmus test of being a financial nerd! I use Personal Capital as well but there’s something to be said for manually going through your assets and liabilities and seeing where you stand.

  9. I don’t have a financial plan in the sense you have explained it, but you have sure given me something to think about. I do most of my tracking using Personal Capital, so it should be easy to gather the info I need and determine if it is helpin me reach my goals.

  10. Hello! Love this. Many of us think about the now, but it’s important to have the current and future in the plan like you said. I use a forecast similar to when I worked as a finance/business analyst and planned manufacturing costs with prior actuals and the future plan. One thing I am working on is putting together our net worth and this will be a big help! One of my previous directors used to say – hope is not a plan. And it’s so true and has stuck with me since. Great info thank you!

  11. Darlin

    What if you took early retirement because of health issues??Say 55.Had to take same amount monthly (out of rolled over 401K to an IRA)until 59 1/2 and then,still only took out just what you actually needed to live?
    Started getting s.s. at age 62 and quit taking anything out of IRA until age 70,when required by law.Mate been getting s.s. since they turned 62 and you,were 66.Started out with $500,000.00 and still have over $450,000.00 at ages 74 and 70.Should our account last thru our lifetimes??
    Our house and everything else is paid for ,plus,have a savings account of $60,000 and a monthly small pension of $225. a month.

  12. I have a financial plan but it definitely needs a review as it’s very general although I then break it down to things I want to achieve in the current financial year. I like the idea of looking at things in blocks as you mention for the flexibility.

  13. A detailed article! Some of the points are really helpful. It is really helpful to my future plans. Thank you for the Article.

  14. Tyler DeBroux

    Great post! You mapped out many of the things a financial planner would say and go over with a client.

    A few years back, I was a certified financial advisor but it didn’t turn out to be the type of career I thought it would be. It seemed like one part of the job was building relationships, which I liked. But it also seemed like the other half of the job was being a salesman, much more than I had expected, which I didn’t like.

    Unfortunately, since I changed careers I stopped meeting the continuing education requirements and let all my certifications expire.

    I do however recommend that most people do their own financial planning. They’ll save a bunch of money in fees over time, and with so many resources and technology available to everyone today (like this post for example), there’s really nothing a financial advisor can tell you which you can’t find an answer to online.

    Again, good post!

    1. Tyler it’s sad to hear that you were turned off by the industry. I think you may have started in the wrong place/s. The commission space lends itself to this. If you ever do consider going back look at fee-only planning. It’s a relationship business that receives no commissions, kick backs or vacations, therefore no high pressure sales.

      The industry hasn’t done a good enough job of explaining the different avenues to new planners. It’s unfortunate.

  15. When we got married, our pastor recommended us to put some numbers into a retirement calculator to help with our budget.

    I still use the calculator once or twice a year just to make sure the figure is roughly the same. We track our monthly expenditures and review our budget every couple months as some of our income streams are seasonal.

  16. Reviewing and updating is SUCH an important part of the process that I fear, is often overlooked. Needs change, dreams change, $ plans need to change with them!

  17. Jim! You’ve got some implementable tips here. Very nice. A plan to make a financial plan, without a financial planner. Perfect!

    I guess if people want someone there long term to hold them accountable, help them make sure they’re on track and counsel together about new ideas or questions as they come, a planner can come in handy. But it’s true that 95% of the stuff a planner does can be DIY. Great post!

  18. Betsy Barnes

    We have had a financial plan for many years, and have visited a professional planner a few times when changes have occurred that we needed advice. We have stuck to it, makes things much easier when you have a map of where you want to be in the future. ๐Ÿ™‚

  19. Having a personal budget is so important. It can lead to a much better financial standing compared to future without a budget. A good idea is to find ways to eliminate debt down the road; for instance, scholarships are way more ideal than student loans!

  20. Jerry Lafferty

    Its never to late to start, i live pretty much pay day to pay day with nothing for my future. It is time to start, thanks very much for the informative article

  21. connie danielson

    I loved this article! It is never to late to start! Thank you so much for all the information that is so valuable! connie danielson

  22. I think it is essential to a good financial plan to track my net worth. I normally do this by tracking all of my spending. However, I have been hearing about programs that can help track this information for me. Have you heard about and would you recommend any of these?

  23. Bethany

    Thank you for this! I’m working on creating a plan for myself, and besides general goals, I hadn’t too much idea what I was doing.

  24. Hi I am a fee-only financial planner that works with women. I don’t sell any products in my business but I do sell my service to those that can get true value from it.

    I want to, without sounding defensive, point out a few things. 1) Not everyone that calls themselves a planner is a planner and 2) The process stated above is only 1 portion of the many many things real, comprehensive, financial planners do.

    It’s unfortunate that the industry has become so diluted and messy, so that people believe financial planners only sell products, fill fish bowls, snag people via deceitful ways & project some numbers. It’s simply not true.

    I’m not here to promote myself, just to educate.

    I encourage you to really look into what true financial planners do. This just isn’t it. If you are working with a person that says they are a planner and this is all they are doing for you then I encourage you to keep looking.