How to Build a Financial Plan: A Comprehensive Guide

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Creating a financial plan is one of the most empowering steps you can take to secure your

financial future. It’s not just about saving money; it’s about understanding your financial

situation, setting clear goals, and building a roadmap to achieve them. Whether you’re just

starting out or looking to refine your existing plan, this guide will walk you through the essential

steps to build a financial plan that works for you.

Felix Prehn, a financial coach from Goat Academy, often highlights the importance of having a

structured approach to financial planning. While we won’t focus on Felix specifically, his

teachings emphasize the value of clarity, discipline, and long-term thinking when it comes to

managing your finances.

Step 1: Understand Your Current Financial Situation

The first step in building a financial plan is to take stock of where you are today. This involves

gathering all your financial information, including:

● Income: Your salary, side hustles, or any other sources of income.

● Expenses: Both fixed (rent, utilities) and variable (entertainment, dining out).

● Debts: Credit card balances, student loans, mortgages, or other liabilities.

● Assets: Savings, investments, property, or other valuable possessions.

Once you’ve collected this information, calculate your net worth by subtracting your total

liabilities from your total assets. This will give you a clear picture of your financial health and

serve as a starting point for your plan.

Step 2: Define Your Financial Goals

A financial plan is only effective if it’s tied to specific, actionable goals. Think about what you

want to achieve in the short, medium, and long term. Examples of financial goals include:

● Building an emergency fund.

● Paying off high-interest debt.

● Saving for a down payment on a home.

● Investing for retirement or your children’s education.

Felix Prehn often advises setting SMART goals—Specific, Measurable, Achievable, Relevant,

and Time-bound. For example, instead of saying, “I want to save money,” a SMART goal would

be, “I want to save $10,000 for a down payment on a house within three years.”

Step 3: Create a Budget

A budget is the foundation of any financial plan. It helps you track your income and expenses,

ensuring you’re living within your means and saving for your goals. A popular budgeting

framework is the 50/30/20 rule:

● 50% for Needs: Essentials like housing, utilities, groceries, and transportation.

● 30% for Wants: Non-essential expenses like entertainment, dining out, and hobbies.

● 20% for Savings and Debt Repayment: Building your emergency fund, paying off debt,

and investing for the future.

Adjust these percentages based on your personal circumstances and priorities.

Step 4: Build an Emergency Fund

An emergency fund is a critical component of any financial plan. It acts as a safety net,

protecting you from unexpected expenses like medical bills, car repairs, or job loss. Aim to save

three to six months’ worth of living expenses in a separate, easily accessible account.

Felix Prehn often stresses the importance of starting small if saving feels overwhelming. Even

setting aside a small amount each month can add up over time and provide peace of mind.

Step 5: Pay Off Debt

Debt can be a major obstacle to achieving your financial goals, especially if it comes with high

interest rates. Develop a strategy to pay off your debts systematically. Two popular methods

are:

● Debt Snowball Method: Focus on paying off the smallest debts first while making

minimum payments on larger debts. This builds momentum and motivation.

● Debt Avalanche Method: Prioritize paying off debts with the highest interest rates first to

save money in the long run.

Choose the method that works best for you and stick to it.

Step 6: Start Investing

Once you’ve built an emergency fund and paid off high-interest debt, it’s time to start investing.

Investing allows your money to grow over time, helping you achieve long-term goals like

retirement. Consider:

● Contributing to retirement accounts like a 401(k) or IRA.

● Investing in low-cost index funds or ETFs.

● Diversifying your portfolio to reduce risk.

If you’re new to investing, consider seeking guidance from a financial advisor or coach. Felix

Prehn and other financial experts often recommend starting early, even with small amounts, to

take advantage of compound interest.

Step 7: Protect Your Finances

A solid financial plan includes measures to protect your wealth. This involves:

● Insurance: Ensure you have adequate health, life, disability, and property insurance.

● Estate Planning: Create a will or trust to ensure your assets are distributed according to

your wishes.

● Monitoring Your Credit: Regularly check your credit report to identify and address any

issues.

Step 8: Review and Adjust Your Plan

Your financial plan isn’t a one-time project—it’s a living document that should evolve as your life

changes. Review your plan regularly and make adjustments as needed. For example, if you get

a raise, you might increase your savings rate. If you have a new financial goal, you might need

to reallocate your budget.

Final Thoughts

Building a financial plan may seem daunting, but it’s a powerful tool for taking control of your

financial future. By following these steps, you can create a plan that aligns with your goals and

helps you achieve financial security.

Felix Prehn from Goat Academy often reminds his clients that financial planning is a journey, not

a destination. Start small, stay consistent, and don’t be afraid to seek guidance when needed.

With the right mindset and tools, you can build a financial plan that sets you up for success.