What is a financial plan, and how do you build one?

What does a financial plan do? As part of the financial planning process, you’ll be able to identify strategies and actions to get you from what your current financial situation is to what you want it to be or what you want to achieve.

Look at all the factors involved, from your income and expenses to when you want to achieve your goals and the ways you’ll be able to. Your financial plan is personalised to your wants and needs and provides a compass to getting you from where you are to where you want to be.

Who needs a financial plan?

Everyone needs a financial plan, and if you don’t have one, you should start immediately.

While the elements of a financial plan are the same, how it’s structured and organised to prioritise your goals will depend on your life stage, lifestyle and current circumstances.

Your financial goals in your 20s will differ to the ones in your 60s, so as your circumstances, needs and outlook change, you should review and adapt your financial plan.

Steps to creating a financial plan

It’s possible to create your own financial plan, but since there are so many factors to consider and you want to be as efficient as possible, it is worth enlisting the help of a professional.

1. Set financial goals
   Your financial plan is rooted in your financial goals and what you want to achieve. Knowing what you’re planning on doing will guide the way to get there and help identify the right steps.
2. Track your money
   You need to know where you’re coming from before you can get to where you’re going. Having an accurate picture of exactly how much is coming, how much you’re spending, how much you have to spend and what you can afford to save will help you create a budget.
3. Create an emergency fund
   An emergency fund is crucial to strengthening your financial security. If unexpected expenses arise, you’ve got them covered without having to worry about overextending yourself or going into debt. Factor in and prioritise this safety net, no matter how small you start.  
4. Deal with your debt
   When you have debt, especially high-interest debt such as credit card debt, it takes away money that you could be using for other things. The longer you pay towards the debt, the more expensive it becomes.
5. Set a retirement strategy
   There will be a day when you have to stop working, but it doesn’t mean you have to stop earning an income. Making provision for your retirement is one of the fundamental boxes that need to be ticked because you want to achieve your goals and be able to enjoy them even in your golden years.
6. Factor in tax
   As you’re planning towards the steps of achieving your goals, ensure that they are tax-efficient so that you don’t end up growing your money or wealth but have to pay hefty amounts back.
7. Start investing
   You don’t need to wait until you have a lot of money or are established to start investing. You can start simple and start small, and your money can accumulate to something bigger. There are various options and tools for various budgets.
8. Ensure your insurance needs are covered
   Review your insurance coverage so that you’re financially protected from unexpected events, and you’ve got measures in place if the unforeseen happens. This includes your medical insurance, life and disability cover and policies to protect your belongings and property.
9. Estate planning
   Since you’re creating a plan for your future financial needs, having a Will in place will ensure that your affairs and your family are taken care of and provided for according to your wishes.
   
   Once you’ve created a financial plan, implementing it means you act according to the steps outlined above. After that, you should review your financial plan yearly as your lifestyle and circumstances change.

_{Disclaimer: This article is solely intended for information. It does not constitute financial, tax or investment advice or recommendation. Please speak to a financial advisor or registered financial professional before making any financial decision(s).}

_{Standard Bank, its subsidiaries or holding company, or any subsidiary of the holding company and all of its subsidiaries make no warranties or representations (implied or otherwise) as to the accuracy, completeness or fitness for purpose of the information provided in this article or that it is free from errors or omissions.}