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What Is a Financial Plan? A Guide

What Is a Financial Plan? A Guide
Jason Steele
Jason SteeleUpdated August 18, 2023
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If you are looking to create an overview of your financial goals and what you need to do to achieve them, you are looking to create a financial plan. Good financial plans will include information about your savings, debt, investments, cash flow, and other aspects of your financial life. 

What Is a Financial Plan?

A financial plan helps you identify, prioritize, and organize your financial goals and the steps that you need to take to achieve them. Financial plans can help you understand if you are on track to meet your financial goals or not. They can cover anywhere from several months to several decades, depending on your goals.You can write a financial plan by yourself or with the help of a professional financial planner. 

The Purpose of Financial Planning

The purpose of a financial plan is to help you maximize your money and reach your financial goals. It can help you realize your priorities in your long-term goals and what steps you need to take to reach those goals. By creating a financial plan, you may be more motivated to create positive financial habits, reduce debt, and increase savings. A financial plan may be the motivation you need to open a savings account and create a budget for yourself.

How to Create a Financial Plan

Follow these steps to create a comprehensive and individualized financial plan: set your financial goals, determine your net worth, track your money, create a budget, and plan for retirement.

Set Your Financial Goals

One of the first steps when creating a financial plan is to set your financial goals. Your financial goals will guide your financial plan, and having goals can make it easier to identify and complete the next steps in your plan. Examples of financial goals could include setting a savings goal, buying a house, retiring early, or starting a business.

Determine Your Net Worth

Calculate your net worth by subtracting the sum of your liabilities from the sum of your assets. An asset is something of value that you own, like your home, your car, money in your bank account, money in your 401(k) plan, and money in other investment accounts. A liability is something that you owe, like credit card debt, student loan debt, your mortgage, your car loan, and any other outstanding bills. 

Track Your Money

Besides determining your net worth, tracking your monthly cash flow is an important part of understanding your financial situation. Your monthly cash flow includes money coming in (including income) and money going out (including bills, purchases, etc.). You can review your credit card statements and checking account to get a good idea of your monthly cash flow. 

Create a Budget

Creating a budget is a key part of creating a financial plan. There are several ways to structure a budget, including budgeting apps and following a specific budget plan, such as zero-based budgeting. Figure out which one works best for you and stick to it, and remember to set aside funds for emergencies.Recommended: 15 Budgeting Tips, Ideas, and Advice for Beginners

Plan for Retirement

Planning for retirement is an important, though sometimes overlooked, part of a financial plan. Even if you are young, it is good to start planning for retirement so that you can take advantage of tax-saving retirement options, such as a 401(k). Another savings option for retirement planning is an IRA, or individual retirement arrangement. There are limits that you can contribute to your 401(k) or IRA, so be sure to factor that into your financial plan. Recommended: 5 Self-Employed Retirement Plans

What Should be Included in a Financial Plan?

When creating your financial plan, there are some standard categories to think about including.


Budgeting is one of the main components of a financial plan. You should determine your income and expenses, as well as your assets and liabilities. From there, create a monthly spending plan that allows you to pay your expenses and save for the future while also allowing for discretionary spending.


You will likely want to include your investment portfolio and asset allocation plans as part of your financial plan. Write down what you currently have in investments, how much you’d like to contribute each month, and what your long-term investment goals are. 

Tax Planning

Taxes are a part of everyone’s finances, so they should be included in a financial plan, as well. Capital gains tax returns, income tax returns, 401(k) contribution plans, and IRA contribution plans should all be considered as part of tax planning.

Retirement Planning

Planning for retirement is crucial to your financial plan, especially if you are older or are making a long-term financial plan. Your retirement plan should include post-retirement and Social Security income estimates, post-retirement lifestyle plans, and retirement account investments. You may also want to include long-term care, disability, and life insurance.

Estate Planning

Similar to retirement planning, if you are older or are making a long-term financial plan, you should consider including estate planning. Things like your will, as well as estate/inheritance tax estimates, would be part of estate planning.

The Importance of a Financial Plan

A well-structured financial plan can help you maximize your money and reach your financial goals. Financial plans can help improve your understanding of your financial situation, which can improve your confidence in weathering difficult financial times. Long-term financial plans can even help build generational wealth. 

The Takeaway

Financial plans are an important and necessary part of life. They help you responsibly manage your money and plan for the future. You can write a financial plan by yourself, but if that feels overwhelming, you can also hire a professional financial planner to help. Once you have created a financial plan, you may be more motivated to reduce your debt and increase your savings. If you are looking for a new savings account that earns interest, Lantern by SoFi can help. Lantern allows you to compare high-yield savings accounts all in one place, including interest rates, minimum balance requirements, and fees.Compare high interest online savings accounts and find today’s best rate with Lantern.

Frequently Asked Questions

How long does it take to write a financial plan?
Why do you need a personal financial plan?
What is the most important part of a financial plan?
Photo credit: iStock/nortonrsx

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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