DIY Financial Plan in 10 Steps

By Carrie Schwab-Pomerantz

Did you know that 78 percent of people with a financial plan pay their bills on time vs. only 38 percent of people who don’t have a plan? Or that 68 percent of planners have an emergency fund while only 26 percent of non-planners are prepared to cover an unexpected cost? Stats like these from the 2019 Schwab Modern Wealth survey reinforce my belief that everyone — no matter their financial situation — can benefit from a financial plan.

So why aren’t more people planners? Often it’s because either they don’t think they have enough money or they think a financial plan costs too much. But neither is the case. In fact, you can map out your own financial plan, and it won’t cost you a penny. Here’s how to get started with a DIY plan.

1. Write down your goals — Start by asking yourself what you want your money to accomplish. What are your short-term needs? What do you want to accomplish in the next 5 to 10 years? What are you saving for long term? Get specific and write everything down.
2. Create a net worth statement — Achieving your goals requires understanding where you stand today. So start by listing your assets — bank and investment accounts, real estate and valuable personal property. Now list all your debts: mortgage, credit cards, student loans — everything. Subtract your liabilities from your assets and you have your net worth. If you’re in the plus, great. If you’re in the minus, that’s not uncommon, but it points out that you have some work to do. Use this number as a benchmark to measure your progress.
3. Review your cash flow — Cash flow simply means money in (your income) and money out (your expenses). How much money do you earn each month? Be sure to include all sources of income. Now look at your expenses, including any that may only come up once or twice a year.
4. Zero in on your budget — Your cash-flow analysis will let you know how much you’re spending. Focusing on your budget will let you know where that money is going. Write down your essential expenses such as mortgage, insurance, food, transportation, utilities and loan payments. Don’t forget periodic payments and be sure to include savings. Then write down nonessentials — restaurants, entertainment, even clothes.
5. Focus on debt management — Debt can derail you, but not all debt is bad. It’s high-interest consumer debt like credit cards that you want to avoid. Try to follow the 28/36 guideline that no more than 28 percent of pre-tax income goes toward home debt, no more than 36 percent toward all debt. Look at each item to decide when and how you’ll pay it down.
6. Get your retirement savings on track — Whatever your age, retirement saving needs to be part of your financial plan. Calculate how much you will need to comfortably retire and contribute to a 401(k) or other employer-sponsored plan or an IRA. The earlier you start, the less you’ll have to save each year.
7. Check in with your portfolio — If you’re an investor, understand that market ups and downs can impact the relative percentage of stocks and bonds you own — even when you do nothing. So review and rebalance on at least an annual basis. (And if you’re not an investor, think carefully about becoming one — the sooner the better.)
8. Review your insurance — Insurance is an important part of protecting your finances. Health insurance is a given, and most of us also need car and homeowner’s or renter’s insurance. While you’re working, disability insurance is a smart move. Finally, you should consider life insurance, especially if you have dependents.
9. Know your income tax situation — The Tax Cuts and Jobs Act of 2017 changed several deductions, credits and tax rates beginning in 2018. To make sure you’re prepared, review your withholding and estimated taxes, and explore potential tax credits.
10. Create or update your estate plan — At a minimum, have a will to name a guardian for minor children. Check that beneficiaries are up to date on all retirement accounts and insurance policies. Complete an advance healthcare directive and assign powers of attorney for both finances and healthcare.

To me, a financial plan can be especially important if you don’t have a lot of money because it can help you get on the path to greater financial strength. Think of it like a roadmap. Whether you need to reduce spending and debt, up your savings, or just refine the details, once you have a plan you’ll be on the road to success.

Have a personal finance question? Email askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab. For more information visit SchwabMoneyWise.com.

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