How to Create a Financial Plan

As your lifestyle and financial goals evolve over the years, creating a financial plan by yourself or with the help of a professional can help translate the complexity of financial topics and myriad of options into a simplified narrative and actionable plan – most importantly with YOUR personal values and objectives in focus. A financial plan is basically defined as an evaluation of an individual’s or family’s current position and a path forward to define, implement, and monitor financial goals over time.


The financial planning process begins by establishing your goals and expectations. It then moves through a comprehensive gathering and analysis of financial and personal information. Recommendations and alternatives are developed based on the analysis and available options, then an executive summary and action plan lay out the findings and options to move ahead with plan implementation. The plan is monitored regularly and adapted for inevitable changes to the financial profile over time.

Data Gathering

A successful financial plan includes the collection of all necessary quantitative and qualitative information, as we know that high-quality output is a product of high-quality input. Objective quantitative data is typically numerical and tangible, whereas qualitative information involves subjective goals and values. Financial documents and data points tell a story about your financial position, and together with the qualitative information, they can provide clarity to make informed decisions. You must know where you are before determining where to go (and how to get there).

Here is an example checklist of financial documents that may apply to your comprehensive planning process:

  • Pay Stubs or Income Statements
  • Savings and Checking Account Statements
  • Brokerage Account Statements
  • Credit Card Statements
  • Loan Documents
  • Credit Reports
  • Insurance Policies
  • Employee Benefits Booklets
  • Pension Plan Statements
  • Retirement Plan Statements
  • Social Security Benefit Statements (
  • Education Funding Statements
  • Estate Documents (wills, POA, advance directives, trusts)
  • Income Tax Returns

Data Analysis

Once you have consolidated your financial information for planning, you can analyze each topic area and consider them together to view your financial landscape with a comprehensive lens. Here are some common examples of topic areas and data points to review in the planning process:

Balance Sheet: This statement is a financial ‘snapshot’ that lists your assets (what you own) and liabilities (what you owe) in a solitary moment in time. It is an important document to update quarterly or annually, seeking to increase assets and reduce/eliminate liabilities over time. Breaking down your balance sheet by property type (qualified retirement, taxable brokerage, real estate, cash equivalents, health savings, etc.) can reveal the weight of each asset class and disclose previously concealed risks and opportunities – each with its own liquidity and tax implications. A colorful pie chart can be useful here!

Debt Repayment: Liabilities add risk to a financial profile, even if debts are leveraged for opportunities with greater potential upside. Debts should be evaluated individually and collectively, sorted by type (secured or unsecured), monthly payment, interest rate, and maturity date. Using time value of money (TVM) and amortization calculators, you can figure out the true cost of your debt if paid minimally, but also compare debt repayment strategies such as the debt snowball method (pay off lowest balances first) or the debt avalanche method (pay off the highest-interest debt first). I utilize Undebt.It to create debt repayment templates. There is an ongoing debate whether to aggressively pay off certain debts with available cash flow or make only minimal payments to invest the difference; here are my personal considerations for making these decisions.

Insurance: Along with debt management and emergency funds, insurance is also an important risk mitigation tool. Insurance at its basic level is an effective way to transfer risks for perils (events that cause loss) that are of low frequency but of high financial severity. Early death, disability, illness, auto accidents, home damage, and personal liability are examples of risks that can be transferred through traditional insurance. These policies should be carefully inspected and summarized to understand their levels of coverage, benefits, exclusions, riders, premiums, and deductibles (including elimination periods). Common recommendations after analyzing insurance are to bundle policies, pay premiums annually or semi-annually for premium discounts, add or remove coverage, and increase or decrease deductibles – with each recommendation in alignment with other topic areas.

Employee Benefits: Most of us receive an annual benefits booklet from our employer, but we often neglect its role in our total compensation package. Employer-paid benefits can exceed tens of thousands of dollars and should be summarized to make us aware of their true value. Health, life, and disability insurance coverage are often included, but the benefits may or may not be sufficient to cover your personal needs. For example, employer-paid life insurance is often limited to a death benefit of $50,000 since any additional coverage cannot be deducted by the employee, and the excess must be recognized as imputed taxable income for the employee. If someone else financially depends on you, evaluate if your life and disability insurance benefits would be enough to cover their financial severity.

Pay Stubs: As documents become paperless, our recurring pay stubs are easily accessible yet often neglected. Take a look at your recent pay stub to review your earnings, income tax withholding, Social Security and Medicare payroll taxes, retirement plan and health savings contributions, benefit premiums, sick and vacation allowance, and net pay. Along with your tax returns, your pay stub tells a story and reveals planning opportunities. Are you over or under-contributing to your available retirement plans? Is your withholding on track to cover this year’s expected tax liability?

Investments: Consolidating information from your investment statements onto a single page can provide clarity when considering your ‘total’ investment portfolio. We often utilize different accounts to categorize our investments and their respective savings purposes (retirement, major purchases, education, etc.), but viewing our assets collectively in the planning process uncovers more opportunities to align our investments with our goals. For example, a taxable brokerage account can be invested for short-term liquidity needs, but it can also complement the asset allocation of qualified retirement accounts for tax efficiency or Roth conversion planning. Investments within your accounts can be further inspected for criteria such as asset allocation, equity style, sector exposure, diversification and correlation, fees, investment risk and return measures, and unrealized gains and losses. Investment analysis can become quite complex but start by becoming aware of what you own and where it is located.

Estate Planning: Take a look at your account titles and beneficiary designations to determine how your accounts would be directed in the event of your death. Also, review your drafted estate documents such as wills, trusts, general and medical powers of attorney (POA), directives to physicians, and HIPAA release forms. If you need help understanding the language of these documents or have not started the process, consult an estate attorney in your state. Your employee benefits package may include a legal plan that offers these services without additional costs.

Developing an Action Plan

Gathering and analyzing your financial data will reveal planning opportunities along the way, especially as you consider how the topic areas work together. You may also find there are multiple ways to achieve a single goal; in this case, consider the alternatives and continuously reflect upon your long-term objectives. Financial planning is both an art and a science; you can spend hundreds of hours learning concepts, laws, rules, and exceptions to the rules, but all of that knowledge needs to account for the human side of money when creating a plan. Try your best to avoid dogma and rules of thumb in the planning process because ‘one-size-fits-all’ methods do not apply well to the intricacies of personal finance. Develop recommendations that align your money with your personal values and objectives, then implement and monitor your plan; the path to financial independence is not a straight line, but you can make corrective adjustments along the way to achieve your goals more efficiently.

Educational resources are available for each of the financial topic areas. If you need help creating your plan or need a second opinion, consult a fee-only CFP® Professional in your area to ensure you receive accurate education that is in your best interest.

For additional ideas, here is a list of possible financial planning topics that may apply to your process:

  • Budgeting & Debt Management: Cash flow, debt review and repayment, balance sheet (assets and liabilities), credit review and recovery
  • Insurance: Life, disability, health, long-term care, property and casualty policy review
  • Income Tax: Review of tax returns, asset tax location, tax liability reduction, deductions and credits
  • Investments: Total portfolio analysis, risk capacity vs. risk tolerance, investment time horizon
  • Employee Benefits: Evaluation of benefits packages (compensation, retirement plan, insurance details)
  • Major Lifestyle Decisions: Career and lifestyle transitions, major purchases (property and business), crossroads planning (marriage, divorce, new children, new job, job loss, aging parents)
  • Education: College savings, education cost analysis, financial aid, student loan repayment
  • Retirement: Review of retirement accounts, Social Security and Medicare, long-term investments, tax-efficient income distribution techniques, income needs, lifestyle expectations
  • Estate Planning: Inheritance planning, gifting, account titling, review of estate documents (wills, trust agreements, and powers of attorney)

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