What is a Financial Plan – and How Can You Create One?

Many people think that creating a financial plan is very complicated and continue to put it off. But it is really not so difficult.

A financial plan is simply a road map to take you from where you are financially, to where you want to be at some point in the future. It’s like going on a road trip with your family—your spouse, children and even your parents.

Besides more confidence in your financial future, creating and following a financial plan will give you peace of mind. What’s more, studies show that following a sound financial plan can add as much as 1.8% to your investment returns.

What Steps Must You Take To Create a Financial Plan?

Planning for your financial future can be one of the most important activities you undertake. But, if you are like many people, you probably don’t know where to start.

Hopefully, the following explanation of the process involved with creating a financial plan will help you to get started.

Step 1: Get To Know Your Current Financial Position

To create a financial plan you must first start by evaluating your current financial position:

  • What financial resources do you already own or have access to?
  • What liabilities do you have and how much?
  • How is your current cash flow? Is it sufficient to fund your financial journey?

Once you understand your current financial position, you may become aware of areas that need your attention:

  • Are you putting enough money away?
  • Are you borrowing too much?
  • Do you have too much bad debt?

Step 2: Define Your Financial Goals

You need to clearly define where you want to be financially. This could mean being in the financial position too, for example:

  • Pay for your children’s education;
  • Buy property; or
  • Retire wealthy in the Caribbean

Write down your financial goals as well as the timeline and the amount of money you need to achieve them. You can then plan a financial road map, taking into account how far away you are from your goals and the time and resources you will need to get there.

Step 3: Determine How Much You Need to Save or Invest

Determine the amount of money you will need to save or invest to reach your goals. This has to correspond with your risk and return requirements and your aversion to loss. You can choose to play it safe and go slow and steady, or to get there fast, which may require you to accept a lot more risk.

Either way, it may not be realistic to expect to achieve all of your financial goals in your desired time frame. So, you may need to temper your goals or adjust your finances by, for the most example:

  • Eliminating any unnecessary expenses
  • Getting rid of bad debt; or
  • Leveraging your current resources

On the other hand, if reaching your financial goals in your desired time frame means a great deal to you, you may need to save and invest much more and work even harder to achieve them.

Step 5: Planning For Contingencies

As you create your financial plan, you also need to create a plan “B” (and sometimes a plan “C”) to deal with contingencies, such as lost wages and income due to injury or illness, medical expenses, and even death. This way, you may still be able to reach your financial goals.

Step 6: Ongoing Review

Reviewing your financial plan essentially means making sure that you are doing everything that you said you would at the time you created the plan. A comprehensive review usually takes you back to Step One of the process to reevaluate your financial position, goals, and objectives.

Remember, you are likely to have more than one financial goal that you are trying to achieve at the same time. This means that you may need to conduct multiple reviews.

How often you review your progress will depend on your goals. Long-term goals may only need to be reviewed annually (unless there has been a significant change in your circumstances). Short-term goals should be reviewed monthly, bimonthly, or quarterly.


With finances, like every other aspect of life, things don’t always go as we planned. There may be road bumps, obstacles, and distractions that cause you to stray from your path. What’s more, you may need to slow down along the way to avoid disaster or to take advantage of other opportunities that arise.

Working with an experienced financial advisor can help you create a financial plan so that you will ultimately be in a position where your money works for you—instead of you working for your money. For help getting started with your financial plan, contact us or sign up below for one of our events.

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