Alex Proud trimmer, saver, and negotiator. I like to pay what's fair not a penny more. Fighting this battle with a smile!

8 Steps to Creating a Smart Financial Plan

3 min read

Through thick and thin, in bad and good times, the people who successfully set goals and achieve them — at least financially — are those who stick to a financial plan. Indeed, if you look for financial security, having a good plan handy is the best way to achieve it. The good news is that it’s not that hard to create a good financial plan — all you need to do is follow these eight simple steps.

Step 1: Track Where Your Money Goes Now

The first and foremost step to creating a financial plan is to plan a budget detailing where your money goes now. You can do it in a couple of ways. Get yourself a financial notebook small enough to fit in a pocket or purse and carry it wherever you go. Every time you spend money, not it down detailing what you bought and the corresponding price. If you are a geek, there are several personal finance apps available on App Store and Play Store. Install it and keep track of your spending.

At the end of the week, spend some time going over your notes and categorizing them. How much you spent on food? On housing? On transportation, clothing, healthcare, rent, entertainment, utilities, and the mortgage? Toward the end of the month, consolidate your notes/app. Repeat the same habit the next month, and so on.

This way, you will have an idea of your expenditure month-by-month. Don’t worry about these expenditures, since your job is not to identify, much less rid yourself of guilty delights. The purpose is only to figure out where your money is going now.

It’s highly recommended to carry on this exercise for at least three months. You need to capture every expense you make, including those which isn’t monthly — for example, car repairs.

Step 2: Set Financial Goals

financial plan with the help of expenditure written in notebook
It’s time to ask yourself a simple financial question: “Where do I want to be 20 years down the road?” Before you answer, make sure you avoid generic answers like, “I want to be rich.” Answer with the help of data and more precisely: “I want to own a house with the mortgage half/full paid off, plus an investment portfolio of $500,000, a side fund of half that help my kids get a college degree.”

Be realistic while setting out your goals and try to be more specific. You want yourself to succeed, not fail, and you can certainly do that only if you start with achievable, precise goals.

Step 3: Keep a Close Eye on Your Credit

Credit Score exhibits your financial state. You can’t get anywhere without good credit these days. Check your score once a year with each of the three big credit agencies, Experian (, TransUnion (, and Equifax ( Get a free copy of your credit score once a year at AnnualCreditReport.

Make sure there aren’t any discrepancies between your credit reports and your records. If any error persists, dispute them with the reporting agency. Instructions on how to dispute errors are available on the agencies’ websites.

Step 4: Prepare For The Unexpected With Insurance

Insurance helps you during an emergency. If you have a family, get disability coverage and life insurance to protect your loved ones. If not, purchase yourself some disability coverage insurance to protect your savings.

Adequate health insurance, homeowners or renters insurance, and auto coverage are also important. No matter your financial situation, insurance is all about peace of mind. It also helps keep you on the right track should accidents create a financial burden.

Step 5: Start Saving

The ultimate key to any savings plan is not income but expenditure. In plain English, it means worrying about spending, not just a paycheck. Even if you earn a high salary, you can outspend those — lots of people do. Controlling your expenditure means you’ll have more than enough. BillTrim can help you manage your finances and save you $1000+ every year on cell phone, cable, internet, auto insurance, and energy bills.

Find ways to save here and there, but don’t be too harsh on yourself. Your ultimate goal is not to eliminate guilty pleasures, only to control them so that you can save a part of your hard-earned money — say 10% — for a savings plan. Put this money aside and keep adding until you accumulate at least three months’ worth of income. If stuck with an emergency, you can use this amount to get rid of that situation.

Step 6: Begin to Build a Portfolio

build financial portfolio with mutual funds
After saving for an emergency fund, look towards investing extra cash. For newbies and seasoned investors alike, the easiest way to invest and build a portfolio is with mutual funds. You can find various mutual funds as per your risk tolerance. For another, they increase your investment risk, but the outcome is also more significant. Mutual funds give you a professional way of money management — a great way if you have less time or expertise to go it alone.

Step 7: Keep Track of Your Plan

Investment is one of the great ways to increase your savings. Make sure you check the financial plan annually to ensure it remains synchronous with your situation. Have your goals changed? How about your debt, family needs, income, and health? How well have your investments performed?
Depending on various circumstances, it makes sense to review your plan every six months, even quarterly. Don’t confuse your long-term goals with the short-term ups and downs in your situation — meaning, don’t just change your plan quickly.

Step 8: Plan Your Exit Strategies

Always have an exit strategy for every financial goal in your plan. If, for example, you plan to buy a 10,000-square-foot house in ten years, you must consider freeing up some of your portfolios at that point to do the job. Similarly, if you planned college money for two kids, you will need an exit strategy for that money. Last but not least, you also need an exit strategy for your retirement and an estate plan for your kids.

The Investing Answer:

Creating a financial plan requires some tough work, as you can see. Also, no amount of planning can guarantee the outcome you desire to get. But planning is better any day than the alternative — namely, no plan. That’s what other folds do, and it’s often why they fail to achieve their goals.

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Alex Proud trimmer, saver, and negotiator. I like to pay what's fair not a penny more. Fighting this battle with a smile!