Financial Planning: Everything You Need to Know

Irina Tsymbaliuk

Financial planning is crucial if you want to feel confident about your future. The majority of people understand that saving money is important, whether for big purchases, retirement, or emergencies. Still, not everyone takes their finances seriously.

In this article, you can learn more about creating a financial roadmap, the stages of this process, and what kind of help you can receive. 

Why Is Financial Planning So Important? 

What is financial planning? A financial plan is created to closely examine all aspects of your finances (income, expenses, savings, debt, investments) and develop effective strategies to help you achieve your financial goals. 

Financial planning helps you improve the quality of life. When you are smart about your income, you have money to achieve your financial goals, pay off a debt, and save for emergencies, retirement, and significant expenses. This gives you peace of mind and ensures you and your family feel safer.

The Basics of Creating a Financial Plan

Once you have decided to start your personal financial planning journey, you should start with specific stages

Set clear financial goals

You should think about what purchases you want to make and how you envision your life. If you want to save money for a child’s education, you should have a sum in mind that you divide by a specific number of years and months. In this way, you know how much to save.   

Create a personal financial inventory

The next step is to see exactly how much money you spend and what you spend it on. A good way to do this is by writing down all your expenses in spreadsheets for 1–2 months. Once this is done, you can group expenses into different categories and see how they can be optimized. 

Make a budget for your income and expenses

When you have an idea of your spending, you can create a budget using the 50/30/20 principle. According to this method, 50% of your income covers your needs (bills, healthcare items, food), 30% is for wants (entertainment, vacations, etc.), and 20% is for savings.

Create an emergency fund

A good financial plan always includes emergency savings. You can start with just a few hundred dollars and then increase the savings to one month of living expenses. It is a good idea to always have an emergency fund that can last you three to six months.

Debt Management

Another element of financial plans is to take into account your current debts. If you have high-interest debts (private student loans, credit card balances, etc.), you should always prioritize paying them off. Creating a debt management plan can be helpful if you have issues with these payments. 

Save and invest in your future

Investing comes in many different forms. Anything from opening a brokerage account to saving for retirement using the 401(k) plan is considered investing money. Even with small sums, you still have the opportunity to buy parts of the shares

Review and adjust your plan regularly

Inflation and any changes in your life may make your financial plan less relevant at some point. While you can make adjustments at any moment, reviewing your plan at least once a year is recommended to make sure that it still makes sense for your life. 

What Are the Options for Getting Help with Financial Planning?

Financial planning may seem overwhelming when you have never done it before. Here are the ways it can be performed and how you can get help.

Plan finances on your own

The benefit of independent financial planning is that it’s free. The cons of this approach are that it’s time-consuming and requires knowledge. Another thing to keep in mind is that a financial plan requires adjustment and constant tracking, so this is something to be prepared for.  

Use specialized tools

Another option is to use specialized online services or a robo-advisor designed for automatic investment management. The pros of robo-advisors are fairly low fees, lower account minimums, and ease of use, while the cons include limited flexibility and personalization. 

Hire a financial planning professional

If you need hands-on help, you can hire an expert to do personalized financial planning for you. They can provide you with expert advice, answer questions, and create the most suitable plan for your circumstances. The advantage is that they will help you stick to your plans and free up your time. The problem is that finding one you can trust can be challenging, and their fees may be high.

Final Thought

The importance of financial planning cannot be underestimated, as it allows you to feel secure about your life and gives you more confidence in decision-making. A good financial plan has to be constantly reviewed and adjusted according to any changes and your goals. You can always turn to professionals for help, or you can deal with your finances on your own.


What is financial planning, and why is it important?

Personal finance plans are designed to help you define your financial goals, figure out the best way to use your money, and ensure you have savings for the future. With the help of proper financial planning, you can better manage your income and have more money for investments.

How do I set SMART financial goals?

When you decide to start money planning, you should first determine your goals. For this, you can use the SMART method. According to it, your goals should be specific, measurable, achievable, relevant, and time-bound.

How do I budget my income and expenses?

A common way to budget your income is to divide it into three categories. 50% of your income should go towards your needs, 30% for wants, and 20% for savings. You can always save more, but it’s not a good idea to go over the limit on wants and needs.