How to Make a Financial Plan in 8 Simple Steps

Knowing how to make a financial plan sounds daunting, but it does not need an adviser or a complicated spreadsheet. A good plan is simply a clear picture of where you are, where you want to get to, and the steps in between. In this guide I walk you through how to make a financial plan in eight steps, in the order that makes the biggest difference.

Why You Need a Financial Plan

Without a plan, money decisions tend to happen by accident. You save when there is something left over, invest when you remember, and react to problems as they come up.

With a plan, every pound has a job. It also makes big decisions, like buying a home or changing career, much less stressful.

Step 1: Work Out Where You Are Now

Start with your net worth. List everything you own, such as savings, investments, pensions and property, then subtract everything you owe. My free net worth tracker makes this quick.

Next, look at your income and spending over the last three months. Your bank statements will tell you more than any guess.

Step 2: Set Clear Goals

Write down what you want your money to do, and when. For example:

• Short term (within a year): build an emergency fund or clear a credit card.
• Medium term (one to five years): save a house deposit or pay for a wedding.
• Long term (five years or more): retire comfortably or become mortgage free.

Put a number and a date on each one. “Save £10,000 for a deposit by 2029” is far more useful than “save more”.

Step 3: Build a Budget That Funds Your Goals

Your budget is the engine of your plan. Make sure your goals are built in as regular payments, not whatever is left over. My guide to budgeting basics explains how to set one up, and the free budget planner does the maths.

Step 4: Build an Emergency Fund

Before anything else, aim for at least three months of essential spending in an easy access savings account. This stops a broken boiler or a gap in work from turning into debt. My guide to building an emergency fund shows how to get there.

Step 5: Clear Expensive Debt

High interest debt, such as credit cards and overdrafts, usually costs far more than your savings or investments earn. Paying it off is one of the best returns you can get. The debt snowball vs avalanche methods are two good ways to tackle it.

Step 6: Protect Yourself and Your Family

If anyone relies on your income, make sure you have the right cover in place. Think about life insurance, income protection and a will. My guide to the types of insurance explains what most people need.

Step 7: Invest for the Long Term

Once your safety net is in place, start investing for goals that are five years or more away.

• Pension: take any employer match first, then consider paying in more for the tax relief.
• Stocks and Shares ISA: invest for medium and long term goals without paying tax on the growth.
• Keep it simple: a low cost global fund is a sensible core for most people.

My guide to building a simple index fund portfolio explains the basics.

Step 8: Review Your Plan Regularly

Life changes, and your plan should too. Review it at least once a year, and whenever something big happens, such as a new job, a baby, a move or a pay rise.

Common Mistakes to Avoid

• Investing before you have a safety net.
• Ignoring your pension until your 40s or 50s.
• Setting goals with no numbers or dates.
• Never reviewing the plan once it is written.

When to Get Professional Help

A simple plan is something most people can create themselves. However, if you face complex decisions, such as taking your pension, receiving an inheritance or planning for inheritance tax, regulated advice can be worth paying for. My guide on how to choose a financial adviser explains what to look for.

You might also find Can Money Buy Happiness? and Savings by Age UK useful.

For free, impartial help with your plan, visit MoneyHelper.

Financial Planning: Common Questions

How often should I review my financial plan?

Once a year is a good habit, plus whenever something big changes, like a new job, a move or a baby.

Do I need a financial adviser to make a plan?

No. You can build a simple plan yourself. Advice can help with complex areas, though. See how to choose a financial adviser.

What tools can help?

Start with our free net worth tracker and budget planner. Together they show where you are and where your money goes.

The Bottom Line

Learning how to make a financial plan comes down to eight steps: know where you are, set clear goals, budget for them, build a safety net, clear expensive debt, protect your family, invest for the long term and review it every year. Start with step one this week. Even a simple plan is far better than none.

Content on IceburgWealth.com is for general information only and is not financial advice. I am not a regulated financial adviser, and tax rules and figures can change. Always do your own research and consider speaking to a qualified adviser before making any financial decision.

This article is part of our Saving and Budgeting Guide, where you will find every related article in one place.