How do I plan my financial future?

What is financial planning and how do I use it to secure my future?

What you will learn from reading this article:

  • How to start planning for your financial future today
  • How to determine how much money you’ll need for retirement
  • Proven personal financial planning strategies
  • The Core 4 principles of saving

Whether you have just opened your first IRA account or are nearing retirement, you can always take steps toward planning a stronger financial future. It’s easy to say you need personal financial planning, but how do you get started making a plan that works for you? Creating a financial blueprint will help you understand where you are and where you need to go. Think of it as a map to your financial freedom – a place where your money works for you, and you no longer need to work for your money.

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What is financial planning?

What is financial planning and why is it so important to your future? At its core, a financial plan is the result of examining your goals and helping you prioritize, save and invest for them. An effective financial plan will account for achieving goals that are more short-term, such as buying a new home or starting a business, as well as the long-term goal of retirement. A financial coach or fiduciary can give you a financial plan example of what it will take to reach these goals or you can develop a strategy on your own.

Personal financial planning advice: Your situation is unique

First of all, remember that life is not a competition. Don’t think you can do the same thing your coworker or sibling did with their financial resources and get the same results. While it’s sometimes beneficial to search for financial plan examples for guidelines, don’t just copy someone else’s strategy. You need to create a financial plan that meets your needs and goals, not anyone else’s. A plan that meets your needs, works for you and that you stick to – that’s success. Figuring out what you really want from life and setting up the correct financial planning tools needed to meet that desire will help you create a clear path toward financial freedom. Here’s how to get started:

Commit to honesty in your financial plan

If you try to build a financial plan that prohibits any fun spending for 10 years, you won’t stick with it, no matter the financial planning tools you try. Instead, take an honest measurement of where you are now and an objective assessment of where you want your finances to be. This will help you build a financial plan that actually works. For instance, if you know you enjoy taking a vacation each year, account for that. Don’t try to convince yourself that you can forego one for ten years – that’s bad for your sense of well-being and is not realistic. Eventually, you’ll cave and go on an extravagant trip instead of taking a more reasonable getaway annually. And if you do adhere to that strict rule, you will be neglecting the self-care that must accompany any successful plan.


Decide on your personal financial planning number

financial planning number

How much money do you need to be financially secure, independent or free? What are your goals for your financial future, and how much money will it take to reach them? Take a guess and go with your gut – write that number down somewhere right now.

Number written? For most people, it usually feels large. But keep going – some analysis will give you the financial planning advice you need to put yourself on the path to make your financial dreams a reality.

Assess where you are now

To make sure your number is accurate, you must first figure out your current financial situation. First, map out what you need for financial security. How much do you pay a month for:

  • Your home (mortgage or rent)
  • Your utilities
  • Food
  • Transportation
  • Insurance

For most of us these five categories make up about 65% of our expenses. Take how much you pay per month, add them up and multiply by 12 – now you have what you’ll need as annual income to achieve financial security. Think of this as step #1 of your personal financial planning journey.


For some context, the US average for basic annual expenses is $34,668. With some planning, it’s likely you’ll be able to pay for your basics by creating a money machine that harnesses the power of compounding interest along with an automated savings plan.

Step #2 involves figuring out what you spend on clothing, dining, entertainment and your small indulgences or luxuries (anything from a magazine subscription to monthly massage can go in this category). Multiply that by 12 and add to your basics. Armed with this info, you’ll get to the number that will ensure your financial security. A few more calculations will let you plan how much you need to retire.

Financial planning tools in place, now it’s time for action.

Use proven personal financial planning strategies to build your financial future

What is financial planning without some effective strategies to attain your goals and free yourself of financial fear? Here are some that are proven to work.

Save a set percentage of your income

You pay for your bills, but are you making sure that you’re establishing your future with a percentage of each paycheck? Commit to paying yourself first, before anything else. By saving a small percentage of your income, you’ll create a nest egg that adds up quickly. Saving $40 a week helps you save around $2,000 a year. But the trick is to automate this percentage so that you don’t even know you’re saving it. Maybe it’s 3% or 10% – maybe more.

Pick your number and then deposit that money automatically in your retirement account. If you get direct deposit through your employer, you can usually split your earnings into different accounts. Take advantage of this feature so you don’t need to spend time doing it manually – and so you’re not tempted to skip it. Otherwise, create an automatic transfer from your checking or other main account into your savings.

Build a money machine

If you harness the power of compounding – making your money work even when you’re not on the clock – you’ll see incredible returns over the long-term and make your personal financial planning much more effective. It can be hard to visualize the results, but with your number in mind, you’re ready to realistically think big.

Follow the Core 4

These fundamental principles of personal financial planning help you make the most of your savings, no matter their size or your stage in life.

  • Protect the principal interest as much as possible
  • Take only asymmetric risks
  • Be tax efficient
  • Be well-diversified

Much of the Core 4 strategy for building a financial plan depends on diversification. Think of your investments as going into three buckets – we also call this asset allocation. By mixing up your types of assets and where those assets live, you’ll decrease your risk and increase your eventual returns. Turns out the saying “don’t put all your eggs in one basket” actually is good advice for a solid financial future.

Looking for a more detailed breakdown of the Core 4? If you haven’t already, go learn more about the Core 4 and how it can work for you.

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