How to Create a Personal Financial Plan

A financial plan can help you settle your outstanding debt, secure your financial future, and even make you happier and more relaxed. Depending on the situation, a suitable financial plan may not require you to spend less money. Instead, you just need to make more effective financial decisions.

Table of Contents

Track your income and spending

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Gather all the data you need to start tracking your spending history. Collect old bills, bank statements, receipts so you can calculate exactly how much you spend each month.

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Consider using software to calculate your personal finances. Personal finance calculator software is fast becoming the new trend. These programs have financial planning tools that can be customized to your needs and analytics to help you plan for future cash flow and better understand your spending habits. . Some personal finance software includes:

Mint
Quicken
Microsoft Money
AceMoney
BudgetPulse

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Create a spreadsheet on your computer. If you don’t want to use software for financial planning, you can make a simple spreadsheet yourself. Your goal is to chart all expenses and income for a year. So, creating a spreadsheet that clearly shows all the information can quickly help you identify any areas where you could spend your money more wisely. ^{[1] X Research Source}

Label the top horizontal cells (starting with cell B1) with the 12 months of the year.
Create an expense and income column in column A. You can list income or expenses first, but try to include expenses and income separately to avoid confusion.
You may need to pool expenses under category headings. For example, you can create a “cost of living” section, which includes electricity, gas, water, and phone calls.
Decide whether to include direct check deductions such as insurance premiums, retirement savings or taxes. If you don’t include these in your spreadsheet, remember to include net income (after deductions) instead of gross income (gross income before deductions) in the “income” section.

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Record budget data for the past 12 months. Record all expenses and income for the past 12 months, using data from your bank and credit statements to accurately represent all sources of income and expenses.

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Determine the history of total monthly income. Are you on a fixed monthly salary and know for sure how much you earn each week? Or are you a freelancer and your salary varies from month to month? Recording your income history for a year can help you get an accurate idea of your average monthly income. ^{[2] X Research Source}

If you’re an independent contractor or self-employed, you need to remember that the money you take home doesn’t equal the money you make. For example, you could take home $2,500 each month, but that’s pre-tax income. You need to calculate how much tax you have to pay and deduct it from your monthly income for a more accurate figure.
If you’re a salaried employee, don’t include your tax refund in your gross income. Your monthly income should be the amount you take home after taxes. If you really get a tax refund, consider it a “gift from heaven”; If not, you don’t have to worry about it.

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List all monthly expenses on a spreadsheet. What bills do you have to pay each month? How much money do you spend each week on food and gas? Do you go out to dinner with your friends every Friday night or watch a movie once a week? How much money do you spend on shopping? Tracking your real expenses for a year will help you to see exactly your spending habits, as most people often underestimate how much they spend each month. ^{[3] X Research Sources}

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Analyze your income and expenses. If your expenses are greater than your income, you are living beyond your income. Your spending plan should be divided into two parts:

Fixed costs . These include recurring monthly expenses such as living bills, insurance, loan repayments, food, and essential purchases such as clothing and appliances.
Money to spend as you like . discretionary spending are non-fixed expenses that you can “optional”. Items that fall into this category include savings, money for recreational activities, money for vacations, and other luxuries.

Financial planning

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Preliminary planning. The data in part 1 will help you make an accurate preliminary financial plan. You should calculate your fixed expenses and income, and then decide how much discretionary spending should be.

To calculate your fixed expenses, you take the monthly average over the past year, then add 5%. For example, your electricity bill varies with the seasons, but if the average is $210 per month, you should calculate this as $220.
Be sure to account for changes in fixed costs such as student loans that you have to pay off or the addition of a down payment to buy a new car.

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Set a goal for how much you want to spend. Once you’ve determined your monthly excess, you can decide how to spend it. Your goals should be clear, definite, and achievable. Some short-term goals might be:

Set aside $8,000 for an unexpected spending fund
Get 5% of each check deposited into a savings account
Pay off credit card debt in 12 months
Save $6,000 for an anniversary vacation

Become a good financial planner

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Stick to your financial plan and don’t overspend. This is the first and almost the only rule of a spending plan. This is pretty obvious, but it’s easy to overspend, even with a plan in place. Pay attention to your spending habits and what you pay. ^{[5] X Research Sources}

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Try to cut spending. Cutting back on big expenses can be the most frustrating but also the most effective way to spend on the plan. If you go on vacation every year, this year consider staying at home. Cutting back on smaller expenses can also make a big difference.

Try to recognize and cut back on luxuries that you normally enjoy. If you get a massage every week or enjoy expensive wine, cut back so you only spend money on those luxuries once a month or two.
Save money on smaller expenses by switching to conventional brands and eating at home more often. Try not to eat out more than once or twice a week. ^{[6] X Research Source}
Think about if you can reduce any fixed costs, such as switching to a cheaper phone service, changing your TV plan, or improving energy efficiency in your home.

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Treat yourself periodically, but be reasonable. Money should serve you, not the other way around. You certainly don’t want to be a slave to your budget or to money in general, so it’s important that you pamper yourself each month without disrupting your financial plan.

Don’t abuse the reward system to the point that it backfires and ultimately affects your bankroll. Treat yourself to smaller, less expensive items like a latte or a new shirt, and avoid splurging on expensive items like a vacation or a pair of fancy shoes.

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Pay off your credit card debt every month. If you want to use a credit card, you should try to keep your balance at zero monthly to avoid high fees. If you can’t pay off your current balance, make it a priority to pay it off over a reasonable amount of time until you reach zero balance.

Try switching to cash for most weekly purchases – especially “extras” like dining out or coffee. This can help you control your spending, as people are more concerned with how much they spend using cash than when swiping a card.

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Reduce tax payable. Make better use of detailed deductions when filing taxes each year.

Start keeping receipts, especially if you’re self-employed, working from home, or working remotely. There are a variety of amenity expenses that you may be paid for as part of your contract work when filing your taxes. ^{[7] X Research Sources}
It’s a good idea to find out ways to get a better tax refund if you’re a contractor, or ask your accountant how to get more tax refunds.

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Request for home valuation. If you own a home and have enough proof, you may be able to get a property tax relief by claiming the value the appraiser charged your property.

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Don’t rely on “God-given” money. Don’t count on potential (unlikely) sources of income like year-end bonuses, inheritances, or tax refunds. Only a certain amount should be put into the budget.

Advice

Put the change/coin in the jar and then bring it to the bank to exchange. You will be surprised how big your odd coins can be. ^{[8] X Research Sources}
Avoid debt in the form of high-interest credit cards and payday loans, as these carry high interest rates and end up costing you a lot of money, especially if you struggle to pay your monthly bills. on time. ^{[9] X Research Source}

Steps

Track your income and spending

Financial planning

Become a good financial planner

Advice

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