How Do You Develop a Financial Plan Step by Step?

By Myles Leva


Last Updated: March 1, 2022


Financial planning is a common theme you will encounter when tackling any financial topic. For every financial goal, personal financial planning will pop up at some point as part of the solution.

We’ve gone over aspects of financial planning in many of our other articles. However, to fit all these personal financial topics together and center them, we need to delve into financial planning more broadly.

In this broader explanation, we will cover:

  • What exactly a financial plan is
  • How beginners can start financial planning with some simple steps
  • Short- and long-term financial planning
  • Examples of financial plans


What Is a Financial Plan?

A personal financial plan is the documentation of an individual’s financial goals. Crucially, a financial plan outlines the strategy for achieving those goals. Therefore, a financial plan is really a multi-step process, rather than just a list of goals with a few practical steps.

Financial planning involves:

  1. An evaluation of your current financial situation
  2. Listing your current short-term and long-term financial goals
  3. Tuning your goals to make them realistic and actionable

A decent financial plan is highly individualized and grounded in mathematical reality. For example, investment goals will be different for those in different age groups and those in different financial circumstances.

One way this plays out is that financial planners will suggest riskier, more aggressive investment strategies to younger individuals. For those closer to retirement, less risk will be suggested, with the goalpost shifted to protecting wealth with a more conservative strategy.

Good financial planning normally requires the assistance of financial professionals. However, the basics can be understood by anyone.


Financial Planning For Beginners

Financial advice for beginners should be centered around basic financial habits first. If you’ve never started with financial planning in the past, that’s fine. The same principles apply regardless of your income or experience with financial planning.


How Do You Develop A Financial Plan?

Financial planning includes a few key steps.


The first pieces of information you need to draft a financial plan are your current net worth and cash flow.

  • Your net worth is your assets minus your liabilities
  • Your cash flow is simply your income minus all your expenses. You will want to break down your expenses into different categories

These two metrics lay the foundation for financial forecasts that are based on reality.

While net worth is simple, albeit a bit burdensome to determine, your cash flow deserves continuous in-depth evaluation. That’s simply because you need to know where your money is going and when it’s going there.

You need to break those expenses into categories, starting with “wants” and “needs”. Knowing what your unavoidable, necessary expenses are and will be is necessary for both short-term and long-term planning.


Accounting For Expenses

This will require you to go through your financial documents at least a few months back. Go through your recent statements for checking and credit accounts. This simplified process can give you a surprisingly detailed version of your history.

Income is normally easy to determine. But when you’re going through your expenses, break them down first into:

  • Needs
  • Wants

Break needs down into:

  • Housing (rent or mortgage)
  • Utility bills
  • Groceries
  • Household essentials (toothpaste, shampoo, diapers, toilet paper, etc.)
  • Transportation
  • Any healthcare expenses
  • Insurance policies

You can break wants down more liberally, as long as you’re strict about what constitutes a want vs a need. It can still be useful to break down spending on wants into categories that are more frivolous against categories that are important to your life and help you develop as a person.

Important hobbies are an example of the latter. Eating out instead of cooking at home, or going to the movie theater instead of watching a movie at home are examples closer to the frivolous side.

One pro tip is that it’s much easier to add everything up on an annual basis. After that, you just divide the totals by 12 to get your monthly spending. If your location and/or lifestyle makes your expenses vary a lot seasonally, then a more comprehensive approach may be necessary.



Now you know what you’re making and how you’re spending it. This gives you the groundwork to start planning realistically.

First, note down your long-term financial goals. At this point, they can be fairly broad. “Retiring comfortably” is a good example of a long-term goal that should later be broken down.

Other common goals for prioritizing include:

  • Saving a trust fund for a child
  • Getting a better home
  • Starting a business

Goals that should be considered necessary include:

  • A realistic retirement strategy
  • Risk management, including adequate insurance and emergency savings
  • Long-term investment
  • Tax reduction
  •  Estate planning


Number Crunching

With your net worth, cash flow, and priorities sorted out, it’s time for a more challenging part of financial planning: budgeting.

To make your financial goals a reality, you will need some discipline and a solid strategy for directing your disposable income. You will want to determine factors such as:

  • How much to add to your retirement accounts every month
  • How much to add to savings for a new house every month
  • What kind of budget is appropriate for groceries

This stage, while conceptually simple, will normally require a lot of arithmetic. For this reason, it’s a task that is often delegated to financial advisors.



While there are key components of financial, which we’ve covered, there is no universal format for them. You will simply account for your net worth, budget, and goals. After that, there are too many individual variables to cover in one short article.

It’s important to note that your first financial plan is likely to fall through, to some extent. That’s fine, as life circumstances change and it’s hard to maintain consistency for a very long time.

If you made your financial plan on your own without professional consultation, you will likely be too ambitious at first. Correcting that is just part of the process, but the fact that you’ve embraced financial discipline and started contributing to meaningful long-term financial goals is always a great start.


Investment Goals

Investing is a necessity for long-term growth and maximizing your wealth. However, there is no one-size-fits-all prescription for investing.

There are two ways to approach investing as a part of long-term financial strategizing:

Consult a financial advisor. Discuss your goals and allow them to set up a financial plan for you.

Educate yourself and invest accordingly. The world of investing is very complicated, and thus exciting, but the basics are easy to understand. Your self-directed investment strategy, should you choose this option, should depend on factors like:

  • Your risk tolerance
  • Your window between the present and the deadline for your goal (ex. Retirement age)
  • The time you have to manage your investments


Estate Planning

Estate planning isn’t just for retirees. There are several aspects of estate planning that are best started as early in life as possible.

For an in-depth explanation of the details of estate planning, read our estate planning overview.



Financial wellbeing cannot be guaranteed. However, if you want to do your best to ensure a healthy financial future for you and your loved ones, financial planning is the best way to get started.

No two financial plans will be the same. But there are concepts and processes that all good financial plans have in common. By sticking with a complete process, you have a better chance of achieving financial success.

Financial plans don’t always start off well. Developing the financial habits needed to make your plan work is another struggle that everyone has to go through. But by going through the financial planning process, you’re helping make your dreams the subject of meaningful action.

Photo by krakenimages on Unsplash


2 comments on “How Do You Develop a Financial Plan Step by Step?”

  1. Be careful. Most financial planners are sales oriented not planning oriented. Or the plan points to the investments they sell. They are also not estate planners. Qualified Attorneys who specialize in estate planning and CFPs who will prepare a plan for a fee and not commissions are the best way to proceed for most people.

    1. Good advice, thank you Charles! We should all do our due diligence in research whenever we are making important financial decisions.

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