How to Create a Financial Plan in 12 Steps

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How to Create a Financial Plan

Financial planning can save your life. According to a 2023 study from the University of Colorado, those who lack a financial plan have an increased risk of death. That’s because knowing how to create a financial plan will help you make better financial and lifestyle choices as you prepare for the future. Here’s a helpful guide for managing your money. And keep reading to see how MoneyLion can help with your finances.

What is a financial plan?

A financial plan is a formal strategy that takes inventory of your current financial situation, sets goals for the future, and creates action steps to achieve those goals. You can create a financial plan on your own, although you can also enlist the services of a financial planner. 

Having a person to guide can be important if you’re just starting the process. However, their services can also be valuable as your strategy becomes more complex because of life insurance needs, retirement planning, and other factors.

Why is financial planning important?

Everyone needs a financial plan. Having one in place will help you take greater control of your finances. A well-developed financial plan can help you by:

  • Improving the understanding of your finances
  • Allowing you to set measurable and attainable future goals
  • Growing your wealth through investments

Whether your dream is to pay off your student loans or retire poolside, you need a financial plan.

How to create a financial plan in 12 steps

It’s never too late or too early to start planning for your future. Here’s how to create a financial plan.

1. Assess your current financial situation

How much debt do you currently have? How much equity do you have in your home? Do you know your credit score? A quick checkup can help you understand where you currently stand, which can assist you as you chart a course for the future.

2. Set financial goals

Set a clear financial goal for yourself. Common examples include:

  • Saving for retirement
  • Eliminating debt
  • Launching a business
  • Planning a vacation

Make sure that your goals are realistic and measurable and that you have a general timeline for when you would like to achieve them.

3. Create a budget

On one side of a sheet of paper, write down all your monthly expenses. Then, on the other side, write down your monthly income. Now, take an honest look at how much you’re actually spending each month. 

Many financial experts recommend the 50-30-20 rule. This involves spending 50% of your income on your needs, spending 30% on your wants, and saving or investing the remaining 20%.

4. Track your money

Keep track of what you spend. A banking app will help you track your expenses. If you have an investment or retirement account, make sure to keep tabs on how your money is growing and be prepared to make adjustments accordingly.

5. Save for emergencies

In the U.S., nearly a quarter of people have no emergency savings. If you have no emergency fund, you’ll be forced to dip into your primary savings account or take out a loan if you experience an unexpected car repair or medical bill or other emergency.

Aim to save for three to six months’ worth of expenses. Putting your money into a high-yield savings account will also help you grow your wealth while saving for short-term emergencies.

MoneyLion offers a convenient marketplace to compare high-yield savings accounts from our trusted partners that could help grow your money.

6. Settle outstanding debts

Debt can hold you back in your financial planning — especially if you’re paying high interest rates on things like credit cards or auto loans. By working to eliminate debt, you’ll have more money to invest in your future goals. 

In the avalanche method of resolving debt, you pay off your largest debt first, then your second largest, and so on. Alternatively, you can use the snowball method where you pay your smallest debt before using the extra money to pay off your next debt. 

MoneyLion offers a service to help you find personal loan offers. Based on the information you provide, you can get matched with offers for up to $50,000 from our top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you.

7. Invest for the future

Investing allows you to help grow your wealth through things like stocks, bonds, real estate, and more. The stock market has historically delivered an average rate of return of around 10%, although past performance is not a guarantee of future success. Investing is subject to risk of loss, including loss of principal. Investing in the stock market comes with risk, which investors can reduce — but not eliminate.

MoneyLion offers a fully managed portfolio that requires no management fees or minimums.

8. Plan for your retirement

Your employer may allow you to divert some of your paycheck to a retirement plan such as a 401(k). Alternatively, you can invest in an individual retirement account (IRA). 

In a traditional IRA, you can deduct your contributions from your annual income taxes, though your future withdrawals are taxed as ordinary income. In a Roth IRA, you’ll pay tax on your current contributions but not your future withdrawals. 

9. Protect your assets

You may already have homeowners insurance or auto insurance to protect your house and vehicle. Personal insurance can also protect your finances in the event of a lawsuit. Covering yourself with an insurance policy ensures that you keep your hard-earned wealth and that your family’s needs are cared for.

10. Plan for taxes

Financial planning also allows you to strategically prepare for tax season. Make sure to keep track of all your sources of income to meet your tax obligations. You may be able to reduce your tax liabilities by deducting things like charitable contributions and business expenses as well as by taking advantage of certain tax credits. These strategies can reduce your tax burden, leaving you more money to save, invest, or lower your debts.

11. Start your estate planning

Estate planning starts with creating a will so that your assets are distributed according to your wishes. You can also work with an estate planner to plan for things like business succession or a final charitable contribution. 

12. Monitor and adjust the plan as needed

Monitor your progress toward your goals by determining how much debt you have left, how much you’ve saved toward retirement, and how your investment portfolio is performing. If you’re not on track toward your goals, it’s time to repeat some of the planning steps to continue progressing.

Map your future

Creating a financial plan can help clarify your goals and create a strategy for reaching them. It may seem overwhelming, but following the above guide will help you tackle your finances one step at a time. Before you know it, you’ll be on track for a brighter financial future.


What does a good financial plan look like?

A financial plan is unique to each person. Most plans will include an assessment of your current financial state, a clear description of your financial goals, and a set of action steps for reaching your goals.

What is the first step in creating a financial plan?

Start by assessing your finances. Determining your current assets, debts, and financial health will help create goals that match your lifestyle and address challenges in reaching these goals.

What is the difference between a financial planner and a financial advisor?

A financial planner will provide comprehensive financial guidance and can be valuable in crafting a financial plan. A financial advisor focuses on individual transactions, and they can be a valuable asset when making investment decisions.

Should I use a financial planner or do it myself when creating a financial plan?

If you’re just starting, a financial planner can guide you through the process. However, you might use the guide above to get started before relying on the planner.

Is it worth paying for a financial plan?

You can create a financial plan on your own for free. However, paying for expert advice can help you refine your strategy based on your goals or identify situations and needs that you had not previously considered.

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