What’s the Best Way to Create a Financial Plan?

Creating a financial plan requires knowing your circumstances and committing to ongoing reviews and oversight. Start with these steps and expert tips.

A good financial plan is a crucial step for your financial security and stability.

A well-crafted plan can help you reach your financial goals, such as paying off debt, saving for a down payment on a home, saving for your kids’ college education, investing for retirement, or anything else that’s important to you.

The Key Steps to Creating a Good Financial Plan

Every plan is different, but the main steps should be similar for most financial plans.

1. Articulate Your Financial Goals: If you want your plan to succeed in getting you from here to there, you have to know what “there” is, or what success looks like. This requires you to identify your financial goals. What do you want to achieve in the short, medium, and long term? This usually includes, e.g., paying off debt, buying a house, or saving for college and/or retirement.
2. Assess Your Current Financial Situation: To get from here to there, you also need a solid idea of what “here” is by assessing your current financial situation. What are your current net worth, income, expenses, and debt situation? This starting point helps you see the difference between where you are now and where you want to get to, identifying things your plan needs to improve.
3. Create a Budget: Now that you know the “here” and “there,” you need a map from the former to the latter. That’s what a budget is. The right budget helps you see the difference between where your money is going now vs. where it should be going, highlighting what adjustments you need to make to achieve your financial goals. Make sure to include all income and expenses, including irregular ones, and be realistic about your spending.
4. Plan to Reduce High-Interest Debt: High-interest debt can be a significant barrier to achieving financial security. Make a plan to pay off any such debt as quickly as possible, to free up money for other financial goals and improve your credit score.
5. Plan to Save for Emergencies: Life is unpredictable, and it’s usually a question of when, not if, an emergency can happen at any time. Set aside a portion of your income to create an emergency fund to cover unexpected expenses. Note that filling a cavity or repairing your car are irregular expenses, but aren’t emergencies. Losing your job or having a major medical issue are emergencies.
6. Plan to Invest for Retirement: Even if you love your work and plan to work forever, reaching financial freedom is an important goal. This is the point where you no longer need income from work, so you can work only on things you enjoy. To avoid having to squirrel away every dollar you’ll need, you want to invest so your money works as hard as you do (preferably harder!). Consider opening and making regular contributions to one or more retirement accounts (e.g., IRAs or 401k, etc.).
7. Review and Adjust: Financial plans aren’t a set-it-and-forget-it solution. As life happens and your financial situation changes in potentially unexpected ways, you need to review and adjust your plan to keep you on track toward your old and/or new goals. For example, if you created your plan when you were unmarried with no kids, your goals will change once you start a family.

Crafting a successful financial plan isn’t a simple task. Consider seeking professional financial advice to develop your plan. A trained and experienced financial advisor will likely know what pitfalls you may have to avoid, and what tools are most helpful. The right pro can help you create a plan tailored to your unique financial situation and goals.

Jon McCardle, AIF, President Summit Financial Group of Indiana says, “Every financial planner believes their way is the best. In our approach, The Summit Pathway Discussion, we developed steps to help each client identify their unique conditions and the appropriate pathway to achieve their goals.”

Since creating a financial plan from scratch can be intimidating and overwhelming, especially if you’re not familiar with the process, I asked some experts to share the important stuff with us…

Question 1: What Do I Get From a Financial Plan?

Marianne Nolte, CFP®, Imagine Financial Services kicks things off here, saying, “Financial plans are custom crafted according to each client’s goals. They may include, but aren’t limited to student loan or tuition planning, funding retirement goals, first-time home buyer calculations, choosing appropriate investments, mortgage reduction/elimination strategies, and/or cash flow analysis or restructuring.”

McCardle says, “We begin by identifying each client’s top three goals, not an easy task for everyone, and then we collaborate with the clients to align financial inventory in a financially efficient manner that focuses their resources on accomplishing those three goals.”

David Barfield, CFP^®, Founder / Financial Planner, Datapoint Financial Planning, LLC expands, “Financial planning is very specific to one’s stage of life. For instance, the planning topics addressed with a retiree or someone very close to retirement would and should look different than, for instance, a couple just starting a family in their twenties or early thirties. My practice focuses on younger clients in the accumulation phase because that’s where I feel I can have the greatest impact. The initial planning phase is more about mitigating risks and making sure the basics are covered. Things like reviewing existing insurance policies to identify any gaps and estate planning, especially when minor children are involved. Once basic protections are in place, the real fun begins as we dive deep into goals, like how best (and how much) to save for the kids’ college, buying a home, optimizing employer benefits, Roth vs pre-tax vs. taxable savings, how much is needed to retire, saving for FIRE goals and how to access savings in early retirement, and much more. Other important topics include how much cash to keep in reserve for emergencies, whether to buy or lease a car, how much to borrow for a car or home purchase, whether to rent or own a home, does rental real estate make sense, and how best to pay down debt. If an advisor doesn’t provide guidance in these areas and more, you should look for another advisor.”

Question 2: How Long Does It Take to Craft a Plan?

Here, it depends on what you include in your measurement.

Jonathan Bird, CFP®, CWS®, wealth advisor at Farnam Financial addresses the time commitment needed from the client, “If you’re using the help of a financial planner, the process typically takes two hours. One hour for ‘discovery’ or information gathering on your goals and current situation. The second hour is the delivery meeting where the advisor explains the plan and corresponding recommendations.”

McCardle addresses the time to craft the plan, saying, “A solid and comprehensive financial plan may take three hours to craft for a simple financial case or 10 hours for a complicated case with numerous moving parts and variables to consider.”

Barfield estimates the calendar time the planning phase takes and says, “The initial planning phase is generally a one- to three-month process, depending on the client. But a plan will very quickly become obsolete if not updated regularly. Ideally, it would be an ongoing, iterative process.”

Generating the plan, while a crucial step, is just the beginning. You also need to implement it, as Nolte says, “Depending on the needs and complexity, it can take four months to a year to generate and implement a comprehensive plan. This is often driven by how available the clients are to work on it. We planners are always absorbed in financial planning, but our clients are busy living their lives. Also, financial planning can be an emotional process, which can slow things down.” 

Question 3: How Much Does It Cost?

McCardle says, “We charge $150.00 per hour for our planning, so if it takes 4-6 hours on average, that’s $600 to $900. Some other planners may charge significantly more, while some large institutions offer it as a value-added service that ‘costs you nothing.’ I‘m always skeptical of things of value costing nothing because I was raised on the notion of you get what you pay for.”

Barfield expands on how the cost depends on the situation, saying, “The cost of a financial plan can vary greatly from one advisor to another. In general, if you’re paying anything more than $10k per year, you’re paying too much in most circumstances. There are exceptions when circumstances are more complex, like very high net worth, lots of rental real estate, multiple businesses, etc. But generally, anything above $10k per year is likely on the high side, and that includes investment management. If you’re paying a 1% asset management fee, you may not even realize just how much that’s costing you. For instance, with a $3 million portfolio, you’d be paying $30k per year at 1%. In most cases, that is far too much to pay for financial planning, and though it’s very common, it’s certainly too much for asset management too.”

Speaking of the broader range of prices one might encounter, Nolte replied, “An experienced CFP^® who owns or works for an independent Registered Investment Advisor (RIA) practice may charge anywhere from $4000 to $20,000-plus for a comprehensive financial plan.

“Many CFPs offer isolated project planning for a lower fee or charged by the hour. This is perfect if you have limited-scope, target-specific questions or goals, such as: Where does all my money go? Can I afford a new car/house? What’s my optimal age to claim Social Security retirement benefits?

“Alternatively, advisors may charge an annual percentage of assets under management (AUM). If you’re planning to work with such an advisor, before setting up an interview, read the firm’s website, call, or email to check if there’s a required account minimum.”

Question 4: How robust are plans to curve balls thrown by life (said differently, how often do I need to revise my plan?)

Nolte replies, “Having a financial plan in place can take away the fear of the unknown. Will your plan stay on course? No, but when you have a plan, handling unanticipated events gets easier. After issues are resolved, you can get back on course for success.”

McCardle agrees, saying, “A well-thought-out comprehensive financial plan should evolve as the financial and family conditions of the client change over time. Clients should revisit their plan at least annually to update their inventory and trajectory. As conditions change, the plan should be realigned to the changes so the pathway remains viable and relevant to the client.”

Barfield also agrees, “Financial planning should be a continuous, agile process, not a one-time event. The most effective model involves ongoing financial planning rather than ‘providing a financial plan.’”

Bird says, “A financial plan can’t predict the future but it can help you plan for it. It can help you answer questions like ‘What can I do now to prepare for the unpredictable?’”

Question 5: What do all the different acronyms (e.g., CFP) mean, and how do I know what type of professional is best for me?

Nolte explains, “There’s a veritable alphabet soup of designations, but Certified Financial Planner™ (CFP®) and Chartered Financial Analyst® (CFA®) are widely recognized as the gold standard.

“A CFP® is rigorously educated and trained to provide financial planning and investment management advice for individuals and couples. CFAs® generally apply their highly trained skills to managing investments on an institutional or corporate level.

“There are many others, including, e.g., Accredited Domestic Partnership Advisor (ADPA®). These advisors assist clients with advanced planning techniques specific to unmarried couples.”

Barfield agrees, “Someone with the CFP® designation has gone through rigorous training and coursework, passed a very difficult exam, and obtained at least three years of full-time financial planning experience. There are many other designations, but the CFP® designation is a good one to look for.”

Bird adds, “There’s also CFA®, which stands for Chartered Financial Analyst and focuses more on portfolio management and investment analysis.”

McCardle places less emphasis on that alphabet soup, “While professional achievements, credentials, and accolades are important to recognize, just because someone went to college, got a degree, and sits for interviews doesn’t guarantee they’re competent. The same applies to financial professionals.”

Question 6: How do I choose the right advisor, including, e.g., how they get compensated, how good they are, are there complaints against them, and how good a fit would they be for me?

Nolte advises, “There’s no question that you have to do your homework. You’ll be spending a lot of time working with your advisor and will have to open up about financial topics not often discussed publicly, so you have to feel good about the professional you choose.

“The best way to find a CFP®, for example, is to search the CFP® Board website called Let’s Make A Plan. Then, search The U.S. Security Exchange Commission (SEC) Investment Advisor Public Disclosure website for disclosures including advisor licenses, registrations, and most importantly, complaints. Make a short list of advisors you think you could work with. Interview them and pick the one you feel is right for you.”

McCardle emphasizes personal experience more, “You’ll experience the firm’s style of communications, their frequency and approach to accountability, and your plan’s information. Their accessibility and your level of comfort when sharing your intimate financial details with them, that’s where the metaphorical rubber meets the road. For some, it may take more than one or two meetings to get a good idea of the fit, but when you feel it, you’ll know it.”

Barfield adds, “The main question you want to be answered is ‘how are you compensated?’ Flat-fee advisors tend to have the least conflicts of interest. Anyone who charges a commission or charges you based on a percentage of your assets has an inherent conflict of interest.”

Bird agrees and says, “Consider a fee-only fiduciary. Fee-only means the advisor only charges one transparent fee. They don’t charge commissions or sell products. The fiduciary standard is the highest standard and means the advisor is legally obligated to make recommendations that are in your best interest. A great place to find an advisor is Wealthtender or Napfa.org.”

Question 7: What factors are most important in making a financial plan likelier to succeed?

Here, McCardle points back at us, saying, “A plan will only succeed if the client is willing and committed to seeing it through. Some are just anxious to check it off their list but don’t incorporate it into their financial routine. So, like a diet, it fails after the enthusiasm and excitement wear off. Plans work for our clients because we work within their current financial conditions. We focus on their goals, not ours. We regularly pull their attention back to their plan as a means of accountability by assigning proactive dates on the calendar for updates and check-in, and that works well for both us and them.”

Barfield says, “A plan’s success is most dependent on one’s ability to follow it and implement the recommendations, and the flexibility for both the advisor and the client to adjust when necessary.”

Question 8: If I’m a DIY person, what are the pros and cons of creating my own financial plan? What are the pitfalls to avoid?

McCardle again references our shortcomings as human beings, “For DIYers, the one thing an advisor has that you can never have when dealing with your own financial condition and creating your own plan is objectivity. Even the most rational, logical, and methodical individual can’t be objective when asking the key questions and facing hard truths. Using financial planning software and planning intervals of accountability help a lot in this regard. Having an objective opinion is never a bad add-on. As one client once put it to me, she would never do her own dental work so why would she try to do her own financial planning?”

Barfield likes DIYers, but sees the value for them too, “I work almost exclusively with DIY investors, and there are always blind spots. Not everyone needs an advisor, but almost everyone could benefit from the accountability and objectivity that a flat-fee advisor provides.”

The Bottom Line

A good financial plan is, in essence, a map that starts with where you are now, financially, and ends where you want to get to, i.e., achieving all your financial goals.

Since every person’s situation is unique, and your personal situation will change over time, for better or worse, a successful plan must be tailored to your circumstances, and reviewed and updated periodically.

The above details the main steps common across most people’s plans, and answers shared by financial pros to frequently asked questions on crafting a successful plan.  

Find a Financial Advisor

Do you have questions about your financial future? Find a financial advisor who can help you enjoy life with less money stress by visiting Wealthtender’s free advisor directory.

Whether you’re looking for a specialist advisor who can meet with you online, or you prefer to find a nearby financial planner, you deserve to work with a professional who understands your unique circumstances.

Have a question to ask a financial advisor? Submit your question and it may be answered by a Wealthtender community financial advisor in an upcoming article.

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.