How to Create a Financial Plan in 7 Easy Steps

Note that the situation for student loans has changed due to the impact of the

Note that the situation for student loans has changed due to the impact of the coronavirus outbreak and relief efforts from the government, student loan lenders and others. Check out our Student Loan Hero Coronavirus Information Center for additional news and 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 U.S. Americans were saving 10% or less of their income, and fewer than half said they had zero to three months’ worth of expenses set aside, according to data from the First National Bank of Omaha.

You may feel like you don’t earn enough money to do any financial planning, but basic financial planning can help you make your money last when money is tight. Here’s how to make a financial plan in seven steps, regardless of your income level:

1. Start with goal setting
2. Review 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 with goal setting

Write your goals down

Setting goals allows you to focus on what you’ll gain instead of what you’ll have to give up. Instead of attempting to keep your goals organized in your head, write them all down, including the small ones, and place them in order of how important they are to you.

When you feel the impulse to make a big purchase, take a pause and add the purchase to your list. You may realize it’s not as important as something else you’re working toward.

Get (really) specific

You can’t make a realistic plan for achieving your goals unless you know how much each goal will cost. If you want to buy a home, research 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 those numbers to calculate the total cost of loan repayment and estimate your payoff date.

2. Review your finances

Make a list of your expenses

Are you scared to look at — or to admit — where your money goes? Reviewing your budget doesn’t have to be scary and doesn’t have to take away your freedom to spend cash. Instead, think of it as an exercise that will allow you to decide what to spend money on and how to reach 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. Be sure to update your budget when an expense changes. You can also use a budgeting app to make the process easier.

Figure out your surplus

The amount you have left after paying for your necessities (which includes housing, utilities, food, medical costs, transportation and debt payments) is your surplus. This dollar amount will be split between savings, travel, dining out or whatever else 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’s the most accurate calculation of the cost to repay your debt. That’s because it takes interest charges and fees into consideration. You can find your APR on your account statements or online account profiles.

When you pay extra toward your debts, prioritize paying off the account with the highest APR. Eliminate any debt with APR above 6% to 7% as quickly as possible — the charges will eat away at the money you put in savings and negate all of the profit you earn from investing.

4. Build an emergency fund

Decide how much you need

It’s recommended that you put anywhere between three months of necessities to six months of income into your emergency savings. But what’s the right number for you? It depends — if your income is unstable, if you have dependents or assets that need regular repairs — aim for the higher end.

Start small

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

5. Invest in your future

Start now

Retirement may be a long way off, but that doesn’t mean you should delay retirement investing. If you’re like most people, your income isn’t enough money to live off of now and save for years of comfortable retirement living. Contributing to your retirement ASAP gives your money the chance to earn interest and grow over time.

Max out your employer match

Does your employer match your retirement contribution? If you’re not sure, it’s worth finding out. An employer match means your employer gives a dollar to your 401(k) account for every dollar you contribute, up to a set amount. Once it’s fully vested, gives you 100% return on your investment.

6. Build ‘sinking funds’

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

Whether it’s for large or small expenses, you can intentionally and consistently set money aside in sinking funds so you’ll be able to use cash for your purchases instead of emptying out your emergency fund or paying with a credit card.

Here are some common sinking fund categories:

  • College tuition for your kids
  • Upcoming taxes
  • Your wedding and honeymoon
  • The birth of a child
  • An upcoming medical procedure
  • Down payment for a car or house
  • Holiday gifts
  • Home remodeling project

7. Reduce your liabilities


Having proper insurance can prevent you from wiping out your emergency savings during a tough time. Be sure to maintain your car insurance and homeowners or renters insurance, and do an annual review of your coverage amounts to seed what needs adjusting.

You may want to spring for additional coverage to protect your home in case of earthquakes or floods. If you have dependents, consider purchasing life insurance to ensure your family will be provided for when you pass away.


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


Another way to reduce your financial liabilities 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 income stream through a side job, by renting out a room or through investments.

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

Setting yourself up for life-long financial security takes a bit of work and consistency. If you spend every paycheck without any plans for the future, you may never make progress. But if you can commit to consistently setting money aside, you’ll gain momentum toward your financial plan. Whether it’s 50% of your take-home pay or just 5%, commit to using part of your income for savings and other long-term goals, every single pay period.

Rebecca Safier contributed to this report.

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