How to Create a Financial Plan in 7 Easy Steps

Note that the student loan situation has changed due to the impact of the coronavirus outbreak and the relief efforts of the government, student loan lenders and others. Check out our Student Loans Hero Coronavirus Information Center for news and additional details.

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Do you find it difficult to save money or make financial plans for the future? You’re not alone. In 2019, the majority of Americans in the United States were saving 10% or less of their income, and less than half said they set aside zero to three months of spending, according to data from the First National Bank of Omaha.

You may feel like you aren’t making enough money to do financial planning, but some basic financial planning can help make your money last when money is tight. Here’s how to make a seven-step financial plan, regardless of your income level:

1. Start by setting goals
2. Look at your finances
3. Eliminate high APR debt
4. Build an emergency fund
5. Invest in your future
6. Build “sinking funds”
7. Reduce your liabilities

1. Start by setting goals

Write down your goals

Setting goals allows you to focus on what you will gain instead of what you will have to give up. Instead of trying to keep your goals organized in your head, write them all down, including the smallest ones, and rank them in order of importance to you.

When you get the urge to make a big purchase, take a break and add the purchase to your list. You may realize that it is not as important as something else that you are working towards.

Be (really) specific

You can’t make a realistic plan to achieve your goals unless you know how much each goal will cost. If you’re looking to buy a home, find out how much you need for your down payment and other related costs like furniture and moving expenses.

If your goal is to pay off student loan debt, find out your loan balance and APR. Use these numbers to calculate the total cost of repaying the loan and estimate your repayment date.

2. Look at your finances

Make a list of your expenses

Are you afraid to watch – or admit – where your money is going? Reviewing your budget doesn’t have to be scary and it shouldn’t rob you of your freedom to spend money. Instead, think of it as an exercise in deciding what to spend money on and how to achieve your goals.

It’s hard to remember all of your expenses, so use a detailed budget template and review your credit card statements and bank statements to jog your memory. Make sure to update your budget when an expense changes. You can also use a budgeting app to make the process easier.

Calculate your surplus

The amount you have left after paying for your needs (which include housing, utilities, food, medical bills, transportation, and debt repayment) is your excess. This dollar amount will be split between savings, travel, dining out, or whatever you choose. Consider prioritizing the next three steps on this list.

3. Eliminate high APR debt

Your Annual Percentage Rate (APR) may not seem important, but it is the most accurate calculation of the cost of paying off your debt. This is because it takes into account interest charges and fees. You can find your APR on your account statements or online account profiles.

When paying extra for your debts, prioritize paying off the account with the highest APR. Eliminate any debt with an APR above 6% to 7% as quickly as possible – the fees will eat away the money you save and wipe out any profits you make by investing.

4. Build an emergency fund

Decide how much you need

It is recommended that you put between three months of necessities and six months of income in your emergency savings. But what’s the right number for you? It depends – if your income is volatile, if you have dependents or assets that need regular repairs – aim for the high end.

Start small

Do you find it impossible to save six months of your income? Start with a smaller goal and set aside a portion of each paycheck until you get there. Saving just a month’s rent or mortgage is a big milestone, and achieving it will help you recover from a financial setback faster.

5. Invest in your future

Start now

Retirement may still be a long way off, but that doesn’t mean you should delay investing for retirement. If you are like most people, your income is not enough to live now and save for years of comfortable retirement. Contributing to your retirement as soon as possible gives your money the opportunity to earn interest and grow over time.

Maximize your correspondence with the employer

Does your employer match your pension contribution? If you are not sure, it is worth finding out. Matching with employer means your employer puts one dollar into your 401 (k) account for every dollar you contribute, up to a set amount. Once it’s fully acquired, you get a 100% ROI.

6. Create “sinking funds”

An emergency fund helps you prepare for unforeseeable expenses, but a sinking fund helps you prepare for purchases you plan to make in the future.

Whether for large or small expenses, you can intentionally and systematically put money aside in sinking funds so that you can use cash for your purchases instead of draining your emergency fund or to pay with a credit card.

Here are some common categories of sinking funds:

  • Tuition fees for your children
  • Taxes to come
  • Your wedding and honeymoon
  • The birth of a child
  • An upcoming medical procedure
  • Down payment for a car or a house
  • Holiday gifts
  • Home renovation project

7. Reduce your liabilities


Having the right insurance can keep you from wiping out your emergency savings during a tough time. Make sure you maintain your auto and home or tenant insurance, and review your coverage amounts annually to determine what needs to be adjusted.

You may want to get extra coverage to protect your home in the event of an earthquake or flood. If you have dependents, consider purchasing life insurance to make sure your family will be insured when you die.


Health is wealth, as they say. Scheduling a late visit to the doctor or dentist can be intimidating, but avoiding regular cleanings and checkups won’t improve your health or lower your future medical bill. One of the few expense categories that you can increase today to save tons of money down the line is health care, including diet and exercise.


Another way to reduce your financial debt is to avoid putting all your eggs in one basket. Even if your job is stable, you can create more long-term security for yourself by adding a second source of income through extra work, renting a room, or investing.

Investing money can be intimidating, but creating a diversified investment portfolio and focusing on long-term gains allows you to lower your risk while letting your money work to earn interest throughout your life.

Preparing for lifelong financial security takes a bit of work and consistency. If you spend every paycheck without any plan for the future, you may never progress. But if you can commit to consistently putting money aside, you’ll gain momentum toward your financial plan. Whether it’s 50% of your take-home pay or just 5%, make a commitment to use a portion of your income for savings and other long-term goals, every pay period.

Rebecca Safier contributed to this report.