How to Create a Financial Plan Like a Pro | Family Finance


A financial plan is any good investor’s foundation – a first step toward creating a long-term strategy that sticks, whether your goal is to repay debts or build wealth for generations to come.

Your financial plan is your compass as you make decisions, large and small, that involve money. Major life goals like owning a home or funding a child’s education require careful planning. And research shows that those who get this plan down in writing are more confident about reaching their goals and tend to maintain healthier money habits, according to Schwab’s 2021 Modern Wealth Survey.

There’s no question among experts about the importance of a financial plan, either. Keith Beverly, managing partner and chief investment officer at Grid 202 Partners, says everyone needs a financial plan – it’s the complexity of the plan that will vary.

“When you first step out of undergrad and have your first job, your financial plan might be simple, but you still have one,” Beverly says. “There might be different levels of complication and nuance depending on the individual, but when you think about financial planning – insurance, taxes, estate planning and investments – those are the core areas.”

Getting professional help with a comprehensive financial plan, however, can be costly and even impossible, as many advisors require a net worth minimum to engage in planning with a new client.

What Is a Financial Plan?

A financial plan is a written document that outlines strategies, goals and objectives for an individual or family’s money.

When created by a professional financial advisor, a comprehensive financial plan typically includes a list of recommendations that consider a client’s goals and values ​​as well as external economic factors. No two plans are exactly alike – and professional advisors usually don’t use a single, universal template for every client – ​​but many advisors do apply the same general financial planning concepts at the outset.

Contents of Your Financial Plan

Your financial plan can be as simple as you’d like or as complex as your situation demands. While you don’t need to outline specific plans for each of these categories, the following list is a general guide for the areas you should review when creating a financial plan.

  • Risk management: Reviewing your insurance needs.
  • Budgeting.
  • Emergency fund and debt management.
  • Retirement planning.
  • Education planning for a child or grandchild.
  • Planning for major expenses (lump-sum purchases).
  • Be planning.
  • Income tax planning.
  • Investment portfolio management.

After reading this list, you should be able to pick out a few areas you want to focus on, and exclude areas that might not apply to your financial situation right now.

Step One: Gather Information

To plan a path forward, you must first discover where you stand today.

When a professional advisor meets with a new client for the first time, the focus of this meeting will likely be information gathering. Advisors need to create financial statements and analyze that information before creating a financial plan.

To create a financial plan like a professional, you cannot skip this step. Compile at minimum a list of the following: your current income streams, insurance policies, bank accounts including retirement accounts and debts owed.

Once you have the nuts and bolts enumerated in one place, take a moment to assess where you stand on a few qualitative questions about money before moving on to the next step. Ask yourself: What is my risk tolerance right now? How important is work-life balance to me? How much time do I really have to dedicate to managing my money?

Step Two: Set Financial Goals and Objectives

After taking some time to reflect on your financial situation, you may see obvious areas needing attention or you may simply want to make a plan to maintain the progress you’ve already made. Either way, it’s time to list specific, quantifiable goals.

“It is crucial to prioritize amongst competing goals. In general, people can have anything they want, but not everything they want,” says Edward Moyzes, CEO and founder of Strategic View Advisors, a Northwestern Mutual Private Client Group affiliate. “At that point you are ready for a deep-dive analysis to provide clarity on which priorities are achievable, what trade-offs should be considered, and how to align your existing wealth and future accumulation with your goals and values.”

Common financial goals often fall into one of these categories:

  • Education goals.
  • Retirement goals.
  • Career goals.
  • Savings goals.
  • Charitable goals.

Step Three: Strategize

At this point, financial plans begin to differ widely from person to person. At this stage of the process, it’s time to formulate a plan to reach the goals you’ve just created for yourself and your family.

If debt management is a focus of your financial plan, for example, Moyzes says, “While debt is often a necessary part of one’s financial life, it is important to differentiate between debt that helps to accumulate wealth, like a home mortgage, and debt that can destroy it, like credit cards. A financial plan should determine if the structure (rate, terms, length) of existing debt is maximally efficient and if consumer debt requires changes to spending habits.”

If estate planning is a priority, Moyzes says your financial plan “could be as simple as a will or as complicated as a series of trusts.”

Creating a financial plan also requires anticipating future conditions and understanding the economic environment in which your situation exists. Consider how your income may change in the coming months and how external factors like inflation, interest rates and tax law changes could affect your ability to reach your goals.

Beverly says his firm closely monitors such external factors on the behalf of clients, analyzing how legislation in Congress and new market trends will affect them on an individual level. This analysis then enters into client conversations and ultimately client plans.

“We have a framework for how we approach planning. We approach each of those with frameworks for understanding their situations,” Beverly says. “We’re being proactive, having that conversation with our clients. Backdoor Roth, this may be the last year that’s an option, so we’re fielding those questions.”

Keeping tabs on the latest interest rates and legislation may be interesting to some and a burden to others. Individuals who lack the time or interest to create and adjust a financial plan – or simply don’t want the responsibility – could turn to a professional.

“It’s not that they’re not smart enough or couldn’t do it on their own, but one of the biggest advantages clients tell me as to why they use an advisor is that they want to take the pressure off of themselves,” he says Kyle Moore, founder and financial planner at Quarry Hill Advisors. “Most people are going to decide if they can do it on their own at some point when the market takes a big hit – it’s about whether they can stomach that. Along with research, mathematics and analysis, human behavior becomes a big factor.”