If you want to create your own personal financial plan, this post is going to help you do it.
I know that you want to improve your financial situation, but I also know that it’s not always easy to figure out where to start. You might not even be sure what questions to ask, nevermind how to find the answers.
So in this post, I’m going to lead you through the exact process I use when I work one-on-one with clients.
This is how I go from not knowing a client to creating a financial plan that allows them to live the life they want.
Quick reminder: the goal of your financial plan
Last week I gave you my view of what financial planning is all about, and it all comes down to this: financial planning is about using your money purposefully to build a life that makes you happy.
It’s as simple as that. It’s not about checking off all the right financial boxes, or saving as much money as possible, or spending less than everyone else you know.
It’s about your life and making it as enjoyable as possible.
Keep that purpose at the front of your mind as you work on your plan.
Find your focus
A financial plan can only be as good as the goals it sets out to achieve. In other words, you have to know what you’re working towards before you can make decisions about how to get there.
So I start by asking my clients two questions:
- What are your 3 biggest life goals right now?
- What are your 3 biggest financial goals right now?
I ask these questions for one simple reason: I want to know what’s important to them.
Once I know what’s important to them, I can look at their financial situation through the lens of helping them achieve those things. Sure, I’ll probably notice some other things that need attention, but unless there are huge red flags my focus is still primarily on the things they have decided are important, not the things I think are important.
And I do this for a couple of reasons.
First, this is their life, not mine. And while it IS my job to make recommendations for how they can improve their financial situation, it is NOT my job to decide how they should live their life. My role is really empower them to achieve their goals.
Second, if I ignore the things they actually want to achieve and instead focus on things I think they should want to achieve, I’m going to fail. It’s simple human nature. Everyone likes to be validated. No one likes to be lectured.
But if I start with the things they want and make a plan that gets those things on track, they buy in to the process. They immediately see some positive outcomes they actually care about, which then makes it much easier to shift to some of the other, less fun priorities.
Now, obviously there are some limits here. If someone tells me that their biggest goal is to take all the money out of their 401(k) and go gamble in Vegas, I’m going to try to convince them otherwise or not take them on as a client.
But by and large, I like to start a financial plan around my client’s biggest personal goals.
The lesson: Focus your financial plan first and foremost on the things you want out of life, not the things you’re “supposed” to be doing. Get those important goals on track, and then shift to some of the other priorities.
Bonus tool: If you’re not sure yet what your big goals are, this process can help you figure it out: 6 Steps Towards Creating Your Ideal Life.
Get the lay of the land
Once I know what my clients are working towards, it’s time to for me look at their current financial situation to figure out a few things:
- Are they already on track towards those goals?
- What can they improve to reach those goals sooner?
- Are there any other holes in their situation that need some work?
I collect a lot of information from my clients to get to the bottom of these questions. I have them fill out a detailed questionnaire that covers their entire financial life, and I also ask them to provide me their tax returns, insurance documents, bank statements, employee benefit handbooks, etc. to make sure I know exactly what they’re doing now and what options are available to them.
Then I go through all of this information and ask some key questions across some major categories, all with the goal of answering those three big questions above.
- Where are they currently working?
- How stable are those jobs?
- How much are they making?
- Do they have any plans to change careers and/or employers?
- How much money is coming in?
- Where is it currently being spent and saved?
- How much is available to put towards new goals?
- Are there any obvious areas to reduce spending without significantly impacting their lifestyle?
- How much money is in basic savings accounts?
- What is that money earmarked for?
- How many months of expenses would it cover? (That is, how big is their emergency fund?)
- Are they being charged any unnecessary fees on these accounts?
- What types of retirement plans do their employers offer?
- Are they taking advantage of any employer 401(k) available to them??
- At their current savings rate, when will they reach financial independence?
- Does an IRA or other account make sense?
- Are they utilizing the best investment options available to them?
- What investment strategy would meet both their financial goals and their personal preferences?
- Are there any they are not taking advantage of?
- Are there any they are paying for but don’t need?
- Are all the major insurance policies in place (health, life, disability, liability)?
- Is there enough coverage to meet their needs?
- Is there a way to get the same or better coverage at a lower price?
- Do they have wills and have they named guardians for their children?
- Are the other basic documents in place (health care proxy, durable power of attorney, living will)?
- Is there any need for a living trust?
- How are they currently saving for college, if at all?
- Are there any tax-advantaged ways they could be saving?
- Does it even make sense for them to be saving for college right now?
- How much do they owe, what are the interest rates, and what are the minimum payments?
- Might they qualify for any student loan repayment programs?
- How are they currently prioritizing their debt payments vs. saving for other goals?
- Do they own a home?
- If so, what are the mortgage terms?
- Are there any plans to buy a house in the near future?
- If so, what might the costs there look like?
- If married, are they currently filing jointly or separately?
- Are there any tax breaks they aren’t taking advantage of?
The lesson: Take the time to pull together ALL of your financial information so you can review it all together. Your financial plan is dependent on all areas of your financial life working together towards the same goals.
Making a plan
Whew! That’s a lot of questions, but that’s honestly most of what I’m looking for. With those answers in hand, I have a good sense of their current financial situation and how they can re-work things to get them on track towards their goals.
If any big red flags showed up in my review, those will have to be one of the first priorities. This might include something like not having any money in savings, a debt without its minimum payments being met, or spending that’s far out of line with income.
But otherwise, the focus is still on those big goals I asked about right at the beginning and how to best use their money to reach them.
In terms of actually putting the plan together, I’m actually evolving my approach here. I used to create a big plan that included everything we would want to do, even if some of those things might not happen for a while down the road.
But now I’m taking a different approach. Behind the scenes I’m still making the outline of that big plan so that I know exactly where we’re trying to go.
But what I give to clients actually only pulls out the very first few priorities. I break each of those priorities down into specific action steps with short-term timelines attached to them so that it’s very clear what needs to be done and when it should be done.
Those action steps cover the next month or so, which is the amount of time before our next meeting. We stay in touch over that month to make sure everything gets done, and at our next meeting I have another set of priorities prepared.
The reason I’m doing it this way is to keep things manageable. A huge plan with a lot of priorities is overwhelming and often leads to inaction. But a short plan with just a few key action steps and specific deadlines is both easy to follow and feels doable. Which leads to a lot more actually getting done.
The lesson: Don’t worry about accomplishing EVERYTHING all at once. Instead, pick just a few small priorities, break them into specific steps and set hard deadlines. Once you’ve accomplished those you can move on to the next few priorities.
Change is the law of life
One of the most important parts of the planning I do with my clients is the ongoing support I provide. I do this in two ways:
- Regular meetings every 6-12 months, after that initial push to get everything in place.
- 24/7 access to me via phone and email to ask questions and get help.
Because here’s the reality: things change. Your life will change. Your goals will change. Your values will change. Your circumstances will change. It’s just what happens.
And when those things change, your financial plan will have to change along with it. It will have to adjust and adapt to ensure that your money is always working purposefully towards the things you care about right now.
So we check back in and we adjust the plan as necessary. Not in response to the news of the day or big stock market crashes or anything like that. But in response to changes in my clients’ personal lives.
The lesson: Financial planning is an ongoing process. Make it a regular habit to check your progress towards old goals, re-evaluate your goals going forward, and make adjustments to your plan as needed.
So there you go! That’s pretty much the exact process I use to help my clients make their financial plans.
There are obviously still some things you’ll have to figure out on your own, like what your personal goals are and how to prioritize your next steps around them. But this framework should help you make those decisions.
And if you ever need some help, you know where to find me.