5 Aug, 2023

Planning Your Personal Finances - 7 Steps

Planning Your Personal Finances - 7 Steps
Written by: - Phil Baker

Think about your future. What is it you want?

Muddling through life financially may suffice in the short term, but how about prepping for a comfortable retirement?

Or better yet, how about retiring early and traveling?

So much better than working yourself to an early grave.

But to make that happen, you’ve got to take action. And all the best actions start with a good, solid plan.

The purpose of this article is to lay out the 7 simple steps you need to follow to achieve your financial dreams.

And without further ado, let’s get straight to it.

Also read: How Is Net Worth Calculated?

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  1. Define Your Financial Goals, Over Both The Short Term And The Long Term

Defining your goals is a pivotal starting point in financial planning. You need to consider what you want to be able to afford in the future, and the lifestyle you wish to achieve.

Knowing your short term goals tends to be relatively easy, because imagining the next two years or so is usually just an extension of your current situation, and how you want it to be improved most urgently.

Setting long term goals requires wearing a different hat, so to speak. It pays to be open-minded for this and have multiple future scenarios in mind.

Remember, you can always tweak or adapt your goals as your circumstances change. (More on that later.)

Also read: Calculate Net Income


  1. Examine Your Current Financial Situation

Start where you are.

In order to feel sufficiently motivated by your plan, it’s nice to think about what steps you can take immediately.

This means that you have to look into your current spending habits, assess your income level and cash flow, and what’s putting the greatest strain on your financial resources.

You need to look into what debts you have to pay, how much they are costing you, and look into the level of your emergency funds.

You also need to examine your current savings and investments. Are they giving you a sufficient return on your investment? Are they a little risky? Will they yield enough for the future you and your family want to live?

Also read: Pay Off Credit Card Debt


  1. Compare Your Financial Goals With Your Current Financial Situation And Make Necessary Changes

Can you reach your financial goals if you carry on the way you are? Or have you discovered that changes need to be made as to how you do things?

In all likelihood, you will probably want to make some adjustments at this stage. At this point, you can start looking at where you may be able to save money by curbing your spending habits, and decide if there are alternative investment options that may be more appealing to you.

If you wish to meet your goals, you will have to apply a portion of your monthly income towards them, including both short-term and long-term financial goals.

Also read: Calculate Opportunity Cost 


  1. Make Back-Up Plans, Ask What You May Need Money For In The Future

No one truly knows what the future holds. But that doesn’t mean you can’t prepare for it.

It’s always better to be safe than sorry. If you have enough money to put by for emergencies, or unplanned or unforeseen expenses, then you won’t be stuck having to pay off a loan that you can barely afford. (Veterinarian bills are the worst!)

Your goals do not have to remain stationary. What you need and what you want can change over time. Maybe you might decide you want to own your own home, or to contribute to your kid’s college fund, or wedding and honeymoon, or you might decide you want to buy a holiday home. The list goes on.


  1. Construct A Solid, Detailed Financial Plan

Once you’re satisfied with your financial goals and your ability to achieve them, you will then be in a position to develop a comprehensive plan of your finances.

It is good practice to set deadlines, even if they are arbitrary for the time being, and set out how, down to every digit, you’re going to achieve these goals. 

There are some great online tools and calculators available to help you construct your financial plan. Many of them are very specific to particular goals, such as saving for a down payment to a family home, or for retiring at the age of 50.

Having a plan in place can put you at ease, and provide you with valuable benchmarks to acknowledge your progress.

Also read: How Can I Start Saving For A House In My 20s


  1. Implement Your Financial Plan And Review It Regularly

No plan is any good without follow-through. Once you have set your goals, examined what you need to do differently and formulated a plan, it is now time to put that plan into action

Live not just within your means, but also within the budgets you have set for yourself in every corner of your life.

And don’t just assume that you’re always within your budget. Do due diligence and check this frequently.

The easiest way to do this is through apps on your smartphone. It couldn’t be more convenient. Not to mention helpful.

Keep track of your progress to help keep you motivated.


  1. Adapt Your Financial Goals And Plans According To Any Changes In Circumstances

Don’t be afraid to make necessary changes. Having to make changes does not mean that you have failed…

Having to change your goals as you go along is natural. Unexpected expenses can crop up at any time. And try as you might to prepare for every eventuality, there could always be one or two things you might miss (like divorce).

But, as soon as you become aware of an issue, you should address this head-on. Burying your head in the sand is not going to make things better.

Sometimes the better option is to wipe the slate clean, and start again afresh.

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Wrap Up

So, those are the 7 steps you need to follow for personal financial planning. Most of it is pretty straightforward, as I’m sure you’ve found. And it’s something that’s worth returning to periodically, so that you can plan for the future you deserve.

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