Determine what your key personal and financial goals are. Before you can create a solid financial plan, you need to be clear about your goals. Common financial goals include: planning for retirement, paying for education, purchasing a home, creating an inheritance for beneficiaries, or developing a financial “safety net” to guard against unexpected expenses, disasters, or life changes.[2] X Trustworthy Source USA.GOV Official website for the United States federal government Go to source You can find templates for worksheets to help define your financial goals by searching online.[3] X Trustworthy Source US Department of Labor Federal department responsible for promoting the wellbeing of workers Go to source Be accurate in your goals you want to accomplish. Ensure your goals adhere to the SMART acronym. That is to say, specific, measurable, attainable, realistic and timely. For example, you may not be saving any money and your goal is to save more. Changing this goal to save 5% of your monthly income is not only specific, but it is also measurable (you can easily tell when you have achieved it or not), and likely attainable in a reasonable time frame. Write your goals down. This

not only ensures you will remember them, but it keeps you accountable. A good system is to write short, medium, and long-term goals. Determine how much you will need to achieve your main goals. For a financial plan to be successful, it is essential to quantify your goals. That is to say, take a specific goal, and translate it into a dollar figure. For example, a common financial goal is retire by 60 or 65. Although it is often stated that 70-80% of current income is a reasonable goal for retirement income, others have suggested 50-60% of income for couples, and 60-70% for singles is more reasonable. [4] X Research source If you are currently making $80,000 per year and are single, your retirement income should be around $40,000 per year using the 50% figure above. This would be an example of translating a goal (retire by 65), into a specific dollar figure ($50,000 per year of income). Once this amount is known, it is possible to create a plan to determine how much money saved and/or invested you will need to supplement your other sources of retirement income to hit the $50,000 year mark. You can find templates online to help you calculate your needs for retirement and other

goals.[5] X Trustworthy Source US Department of Labor Federal department responsible for promoting the wellbeing of workers Go to source Calculate your net worth. Net worth is defined as your assets minus or liabilities (or what you own minus what you owe).This figure will give you a precise sense of your current financial position, and can help you make good decisions and achieve your goals. You can create a simple worksheet to calculate your net worth, or find a template online.[6] X Research source [7] X Trustworthy Source US Department of Labor Federal department responsible for promoting the wellbeing of workers Go to source Begin by creating two columns, one for assets, and one for liabilities. List your assets. An asset simply refers to anything you own, and can include things like cash on hand, savings and checking accounts, retirement funds, real estate, personal property, investments, etc. Next to every asset, list the value of the asset. For example, if you own a house, list its value. The same would apply things like a stock portfolio, or a car. Add together the values of your individual assets to find the total value of your assets. List your liabilities. A liability

refers to any debts you owe. This includes things such as a mortgage balance, credit card debt, student loans, car loans, personal loans, etc. Add together the amounts of your individual liabilities to find the total liabilities amount. Subtract the total amount of your liabilities from the total value of your assets. This number is your net worth. If the number is negative, it indicates that you owe more than you have.Conversely, if you have $100,000 in assets, and $50,000 in debt, your net worth would be a positive $50,000. As you progress in your financial plan and save more, your assets should increase (along with more savings), and your liabilities will decrease (as you eliminate debt) Decide to create a budget. While net worth gives you a picture of your assets and liabilities, it is even more important to know how much money comes in and goes out every month. This will give you a good idea of what you spend money on every month, and having all these expenses written down can tell you exactly where savings can be found. This is the centerpiece of any financial plan[8] X Research source [9] X Research source Determine your sources of income. Make a list of your monthly sources

of income (salary, child support, etc.). Add these sources together to find your total monthly income. Determine your monthly expenses. It can be helpful to organize these into groups. For example, under “Housing,” you could include your rent or mortgage payments, home or renter’s insurance, and utilities; under “Transportation,” you could include car payments, fuel costs, maintenance charges, and car insurance. Add all of your expenses together to find your monthly total. Make sure to include expenses like entertainment, food, clothing, credit card payments, taxes, and other incidental costs. Account for irregular and variable expenses. Remember that some expenses are “fixed” (the same or nearly the same each month) while others are variable (change frequently, or are irregular). When making a budget, try to account for variable expenses, including those that don’t occur monthly. You can make a list of variable expenses that occur over a period of several months, add them together, and then divide that sum by the number of months. This will leave you with an average variable expense number that you can factor into your monthly budget. Subtract your total expenses

from your total income. If your income is more than your expenses, you will have a remainder that you can save, invest, or spend according to your financial goals. If your expenses are more than your income, then review your budget for expenses that you can reduce or cut. If you don’t yet know the exact amount of your income and/or expenses, keep track of them for a few months to get an idea. Review and update your budget frequently. Make sure to add any new expenses, and remove any that you no longer have. Find savings. Regardless of your financial goal, saving will be a central component. Whether your objective is to purchase a house, retire early, or pay for a child's education, saving will be the key means by which you accomplish the goal. Refer to your budget for this. Look at your monthly expenses, and find areas of non-essential spending that can be cut. For example, if you eat out three times a month, or buy lunch at work everyday, focus on eating out once a month, or bringing a lunch to work. Look at your budget and decide what is a "want" and what is a "need". Look to the "wants" area for savings. Similarly, look at what you consider "needs", and ask yourself if they

are truly needs. For example, your cell-phone may be a need, but you may not need a 3GB data plan, and instead can get by on 1GB. Learn to make saving a habit. Begin by opening insured account at a reputable bank. Experts recommend the method of “paying yourself first,” which means that each pay period, you commit to setting a certain amount aside for savings as part of your budget.You can make an arrangement with many banks to automatically withdraw a set amount of money from your paycheck for this purpose.[10] X Research source Save an amount that you are comfortable with, given your needs and expenses. The amount you save can increase (or decrease) as time goes on. The important thing is to save something, even if it is just a small amount. Saving ten percent of your income is a good place to begin, but saving anything is better than nothing.[11] X Research source Saving even a small amount in an interest-earning account (checking, savings, CD, etc.) will be beneficial because of the power of compounding. This means that the interest your money (principle) earns becomes added to the principle in time, which then earns more interest, and so on—causing the overall value of

the account to grow.[12] X Trustworthy Source US Department of Labor Federal department responsible for promoting the wellbeing of workers Go to source Practice makes perfect. By saving a set amount each month, or "paying yourself first", it will become automatic and you will learn to live without the saved money as if it wasn't there to begin with. View the saved money as an essential expense, just like rent or mortgage payments. Build an emergency fund. Experts recommend setting aside enough money to cover your needs for at least three months as an emergency fund in case of job loss, major illness, etc. Keep these funds in an insured bank account so they will be both protected and easily available when you need them.[13] X Research source You can also protect yourself against financial problems by being properly insured. If you have questions about homeowner’s/renters, health, life, unemployment, disability, or car insurance, talk to your relevant agent.[14] X Trustworthy Source US Department of Labor Federal department responsible for promoting the wellbeing of workers Go to source Take advantage of any special savings benefits. If there are government- or employer-based

savings incentives available (such as for education or retirement), consider taking advantage of them. If your government or employer is able to contribute to these savings plans or offer other kinds of benefits (such as tax relief), it may help you get closer to your financial goals. In the United States, for example, you may have access to a 401(k) retirement account through your employer, who may also match a certain amount of your contributions and increase the value of the account. Similarly, anyone can open an Individual Retirement Account (IRA), which can have tax benefits.[15] X Trustworthy Source US Department of Labor Federal department responsible for promoting the wellbeing of workers Go to source Consider making investments. Investing is an essential part of most financial plans, as it allows you to reach your financial goals quicker, and with less money saved by generating a return. It is important to note though that all investments do carry a degree of risk, and it is possible to lose money. [16] X Trustworthy Source USA.GOV Official website for the United States federal government Go to source Common areas of investments include stocks, mutual funds, bonds, real

estate, and commodities.[17] X Research source Each type of investment has a different earning potential, costs, and risks. You can purchase many types of investments (such bonds, stocks, and mutual funds) through banks, brokerages, and sometimes directly from companies, governments, or municipalities. Much investing can now be completed entirely online, but there are many investment brokers you can consult in person. Fees for face-to-face consultation, however, will likely be higher than transactions you complete on your own online. Understand the different types of investments. Although there are too many to list in one location, three important types of investments are stocks, bonds, mutual funds. A stock refers to ownership in a company. By purchasing a stock, you are effectively buying a piece of a business, and the value of that piece will move up or down depending on how many people want to buy or sell it. For this reason, stocks can be incredibly volatile, and although they generally do better than any other type of investment (returning an average of 8% annually since 1929), they can also lose a tremendous amount in one year. For example, in 2008, U.S. stocks fell 50%.

Stocks are a good choice for individuals holding for a long-term, such as those planning for retirement. Bonds refer to a debt investment. When you loan money to a government or company, you are purchasing a bond. In return for loaning the money, you will receive interest from the entity you loaned to, usually paid out annually or semi-annually. Bonds offer less risk than stocks traditionally. A mutual fund refers to a collection of investments (usually stocks), managed by a professional investor. When you purchase a fund, you are buying ownership in the basket of stocks, and you make or lose money depending on how the underlying basket does. Mutual Funds are a great choice for hands-off investors, as you benefit from plenty of diversification, and a professional manager who will buy, sell, and manage the portfolio depending on market conditions and their strategy. There are, however, fees associated. Determine how much risk you can take. Every type of investment carries a different level of risk, and before investing it is important to know the degree of risk you are willing to expose your hard-earned money to. Refer to your goals to determine your risk. For example, if you are

saving for a vacation in 6 month, investing in stocks may be a poor decision, because stocks carry higher risk and can be very volatile over time. This means that while there is a chance you could reach your savings goal very quickly with less money saved, there is also a chance that you will need to postpone your vacation due to your investments dropping far below what you put in. A better bet would be bonds (which carry lower risk), or even just cash in a high interest savings account. A general rule of thumb is that the higher the potential return, the greater the risk—which also means that the lower the risk, the lower the potential return.[18] X Trustworthy Source USA.GOV Official website for the United States federal government Go to source Fairly “safe” investments include savings accounts, and U.S. Treasury bonds.[19] X Trustworthy Source USA.GOV Official website for the United States federal government Go to source Stocks have the potential for greater returns but also higher risks. Mutual funds help minimize risk by investing across a broad range of stocks and securities, and can be a good choice for long-term investments. Never invest money you need in the

short-term, or for essential items like food, rent, or gas. Choose appropriate investments. Once you know your goals, understand the types of investments, and know your risk tolerance, you can select a type. Stocks work well if you have a medium to high level of risk tolerance, and are saving for medium to long-term goals. For example, if you are saving for retirement, having stocks is highly recommended. Keep in mind that not all stocks are high-risk. For example, investing in a small pharmaceutical company (which is not recommended) would be extremely high risk, whereas investing in a large, stable company with steady cash flow and competitive market share like Walmart, Wells Fargo, or Coca-Cola would be much lower risk. If you do not have the time, comfort-level, or risk tolerance for individual stocks, consider mutual funds. These are suitable for longer or medium term goals like retirement or saving for a child's education, but are more "hands off", and you can often just check on them annually or semi-annually to make sure they are performing as you want them to. You can research mutual funds on your own and purchase them through an online dealer, or visit your local bank or

financial advisor for options.[20] X Research source Bonds are suitable for individuals with lower risk tolerance, who are more concerned with preserving savings, while growing them at a low but steady rate. It is important to note that bonds have a place in any portfolio, and it is often advised that individuals who are in their 20's to 40's have a larger stock and mutual fund allocation, whereas individuals closer to retirement switch more to bonds to preserve savings. Bonds can be an effective way to balance your portfolio and lower your risk. A good rule is to subtract your age from 100, and that is the percentage you should hold in stocks.[21] X Research source Diversify your investments. Not all sectors of the economy perform equally well (or badly) at the same time. If you spread your financial portfolio across different kinds of investments, then you can minimize your risk of losing its overall value in the event that one or more parts of it “take a hit.” This method is called diversification.[22] X Trustworthy Source USA.GOV Official website for the United States federal government Go to source For example, a retirement plan might be spread across several types of

investments, including mutual funds, stocks, and savings accounts. In this case, the mutual fund's likelihood of long-term growth could make up the difference if an individual stock the retirement plan invests in loses value. The cash in a savings account, while it would earn relatively low interest, would be insured and easily accessible if needed. Think carefully when making financial decisions. The SAVED (Stop, Ask, Verify, Estimate, Decide) method is a guideline to follow when making financial decisions:[23] X Research source Stop and give yourself time to think before making any financial decision. Don't be pressured by salespeople, brokers, etc. Tell them (and yourself) that you want time to consider. Ask about costs (taxes, fees, maintenance, etc.) and risks that would be part of the decision. Make sure you know what the worst-case scenario might be. Verify all information to make sure it is accurate and trustworthy. Estimate the costs of this decision, and how it would fit into your overall budget. Decide if the decision makes sense for you. Be cautious when using credit. Sometimes, borrowing money can be a sound choice—for instance, buying a home, paying for education,

or making a necessary purchase. However, keeping debt—especially high-interest debt like credit cards—reduces your net worth and can slow your progress toward achieving some financial goals.[24] X Research source Don’t overuse credit cards. Try to make your spending within your means. Pay off high-interest debt as soon as possible. This can be the best strategy for financial growth in the long run, because even good investments usually can’t earn enough to make up for high-interest debt. If you have multiple credit accounts, try to pay off the one with the highest interest rate first. Seek trusted advice when you need it. Financial planning can often be successfully self-directed. However, if you feel like you don’t have the time to do research and manage your finances, don’t know where to start planning, or if you are dealing with something unexpected (like an inheritance or illness), you should consider consulting with a certified financial planner.[25] X Research source Be wary of untrusted sources of advice, investments, etc. If an offer sounds too good to be true, there is a good chance that it is.[26] X Research source