How to Create a Financial Plan
To create a financial plan, you will need to define your financial goals. The most common goals for a household are general investing, college planning and retirement planning. You want to define each goal by developing a written financial plan. People who take the time write a financial plan are more likely to achieve those goals.
Create a list of goals. You can start by brainstorming about your financial goals. Are you planning to make any financial purchases in the next few months? Examples of goals are planning a vacation, purchasing a home, paying for private school or making investments.
Define your list of goals. A financial goal is only a goal, unless given an amount and timeframe. For example, if you are planning a vacation for the summer but don’t give a specific date, then the goal is undefined and not really a goal.
Apply the “Acid Test” to your goal list. You will need to reduce the goal list to the most important goals. The Acid Test is when you remove goals that you are not willing to work hard to accomplish. Ask yourself “Am I willing to work hard to accomplish this goal?” If you are not willing to make changes to your goals in order to accomplish the goal, then the goal does not pass the Acid Test. There should be only goals that pass this test on the list.
Determine your present financial situation. You can start by determining your net worth. Net worth is the difference between liabilities and assets.
Determine your current discretionary income. Discretionary income is the amount of money left after paying your monthly bills. This amount is what can be used for building personal wealth or reducing household debt.