Setting Up a Financial Plan? How to Create Realistic Goals and Budgets

Hearing the words “financial plan” might make you want to run and hide, because they can be pretty intimidating. Unfortunately, chances are that you’ll most likely have to deal with them in some capacity during your life. You might need to set up a financial plan for a business. If not, you might want to consider putting together your own personal financial plan.

Financial plans lay out your current financial situation, what you want it to be after a specific amount of time, and how you are going to get there. It contains nearly all of your financial information, and it might be able to give you more in-depth insight into where you can make adjustments to your spending habits. By breaking it down, a financial plan will be able to help you create budgets and goals that are maintainable and attainable.

What should you include in a financial plan?

You should start by entering all of your separate bank accounts and how much money is in each of them. Next, decide over which time period your financial plan is going to stretch. A year? A quarter of a year? Longer? Shorter? 

It should also include a breakdown of your monthly income and expenses. A list of things you want to save for will also be helpful, as well as a list of your investments. Add any and all relevant information you can think of. Having all of your financial information in one concise document will help you keep track of everything. Keep reading to find out more about certain aspects.

Investments

There are various ways of investing your money, such as real estate, bonds, stock, or mutual funds Canada. Including all of your investments in your financial plan will help you estimate how much money you can spend on more investments, as well as whether you’ll be getting any high returns soon. 

Looking at past data from wherever you have invested will help you estimate how much money you can expect to get from these investments. Keep in mind that the economy is constantly changing and affecting your investments, so it’s not wise to rely on them as your sole income.

Budget

The budget is possibly the most important aspect of your financial plan. This will include a projection of what you expect your expenses and income to be, along with a further breakdown of what all of your expenses are, as well as a list of income sources.

This will give you an estimate of how much money you’ll have over after paying all of your necessities each month. It’s a good idea to decide beforehand how much of that money will be going into a savings account.

Breaking down your income and expenses

As mentioned above, you need to create an estimate of your income and expenses. To break it down into smaller steps: make a list of your monthly expenses, along with how much you spend on each expense. See where you can cut back or make adjustments. Do the same for your income. Then subtract your expenses from your income to see what you’re left with. This will give you a better idea of whether you are living comfortably or whether you are just getting by and need to make more adjustments.

Goals

The most important thing is that your goals are realistic. You can’t expect to save a million a month if you’re making just over minimum wage, so be fair with regards to your goals. Set financial goals that can be achieved during the duration of your financial plan.

It’s important to set short-term and long-term goals, since achieving these short-term goals will keep you motivated for the long-term goal. You can even break your long-term goal into smaller, micro-goals to make it seem less daunting. For example, if your goal is to buy a car by the end of the year, you can have a monthly goal of saving a certain amount of money each month.

Smaller plans

While a financial plan is a great resource to have, it can be tedious to go through it every time you want to make a financial decision. It is therefore advisable to set up smaller plans that cover shorter periods of time and include less information.

You can break your financial plan down into yearly, monthly and even weekly plans. These plans won’t go into as much detail as your full-length plan, but rather provide an overview of what you can expect for that duration of time.

That way, if you want to spend money or you unexpectedly earned more money, you can just consult your smaller plan and make adjustments. You can input all of that into your big financial plan at a later date.

Savings

You need to plan your savings ahead of time. It can be hard to keep track of all of the things you are saving for, so include a list of all of your saving projects, along with how much you want to have in them by the end of the financial plan. Once you have the final number, write down how much money to transfer into each project each month. 

Examples of popular saving projects are: saving for a house or car, saving for a trip, opening an account where you can save for your studies, or starting a retirement fun. You can also look for ways that you can save money in your day to day life and write them down.

Adjust

If your financial plan is for a longer duration, like a year, keep in mind that you will need to adjust certain things here and there. The economy changes all the time and it’s very rare that the path you had planned in your financial plan will go exactly as planned.

Things will change in your personal life as well, for better or worse. You may have an emergency and need to give out money you hadn’t budgeted for. You may get a raise and therefore be earning more than expected. Whatever the case is, know that the financial plan is more a guide than something set in stone.

 

*This is a collaborative post.