You got this: An easy guide to making your financial plan
Part of our build your own financial plan series
Simple tasks. Once a month. This is the year to get your money in order.
This is the first story in a series about how to create a personal financial plan. You’ll create a budget, do some tax planning, set up an emergency fund, plan to reduce your debt, and more.
Check back each month and we’ll give you another step in the process. Before the end of the year, you’ll feel smarter and more confident about your money and be a step ahead of your friends. (Oh, and you’ll probably sleep better, too.)
Setting goals, step-by-step
For this month's story, we’ll tackle setting financial goals. Because it’s always good to have a clear idea of what you’re saving your hard-earned money for.
Use our fillable financial goals worksheet (PDF) as you work through each step.
1. Think about what you want your money to do for you.
Goals help guide your plan. They don’t have to be set in stone. In fact, you’ll revise them throughout your life. But you need to start somewhere.
Everybody wants to grow their money saved, of course, but how much, how fast, and for what reasons? That varies from person to person.
The key question … what kind of life do you want now? Later? Take a look at some examples below:
Basic life and money goals
- Buy a home. Or a different home if you already have one.
- Remodel or repair your house. Examples: new roof, finish your basement, update your kitchen.
- Pay down debt, such as loans and credit cards.
- Buy a car.
- Build an emergency fund.
- Pay off student loans faster.
- Pursue hobbies and interests. Take a trip overseas every 3 years, or become a season ticket holder for your favorite team.
- Give annually to a favorite charity.
- Start a new business or expand a current business.
Family-related financial goals
- Get married. (Rings, honeymoon, flowers. It adds up.)
- Plan to have children. Think day care, activities/sports, braces, and summer band camp.
- Help kids with college expenses.
- Leave the workforce to raise a family, care for aging parents, go back to school.
- Help adult children with expenses, like pay for a wedding or a down payment for a house.
- Leave an inheritance for your loved ones.
- Retire from working full-time. (Or goal may be to work part-time, or to retire early.)
- Move somewhere that has a lower cost of living, or where it’s warmer, or to be closer to family.
- Pay off your mortgage before you retire.
2. Categorize each goal as short-, mid- or long-term.
Use this as your guide to help you complete your financial goals worksheet:
- Short-term goals: 6 months to 5 years
- Mid-term goals: 5 to 10 years
- Long-term goals: more than 10 years
3. Set a target date for each one.
Being specific helps, even if you adjust the date over time. If you have a son headed to college in 2030, you have a target date for your college savings goal. Want to take a cruise for your 10th wedding anniversary? You know what timeframe you're working toward. Add target dates to your worksheet.
4. Prioritize each financial goal: critical, need, or want.
It helps to prioritize, so if push comes to shove, you know what to fund first. Label each goal on your worksheet: critical, need, or want. Let’s say you have a short-term goal to build up your emergency fund, and it’s “critical.” But another short-term goal is to trade your car, which is running just fine; it’s a “want.” If funds become tight 1 month, you know where to put your money.
5. Know how much you have vs. what you still need to save.
Do you have money in a 401(k), 403(b), or IRA? If so, log those numbers on your worksheet toward a retirement-related goal. Note: Some goals may not have current savings. That’s OK. You have to start somewhere.
If you plan to buy a home in 2 years and you need $15,000 more for a down payment, divide that by 24 months. Then you know to save $625 more per month toward that goal.
- Make sure you’ve used our fillable financial goals worksheet (PDF) to log everything above.
- Check back each month to find the next step toward creating a plan. Next month’s topic: budgeting, so you can fund the goals you just set.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
Insurance products and plan administrative services provided through Principal Life Insurance Co., a member of the Principal Financial Group®, Des Moines, IA 50392.