How to write a Personal Finance Plan – full outline and real-life examples
Updated: February 15th, 2022
No need to feel bad if you don’t have a plan – I’ve never had one until recently.
In fact, it wasn’t until I found myself Accidentally Retired that I created one.
But now that I look back, it made no sense that I didn’t have one.
In my personal life, I set goals and created life mantas.
In my professional life, I put rules and boundaries in place, so that I could work 40 hours or less and still be successful.
I have tried to be thoughtful, reflective, and live my life with purpose.
Do you have a Personal Financial Plan? Is it on paper or just in your head?
Nothing is worse than haphazard financial planning
The truth of the matter is that I didn’t think that I needed it. I thought I had things more in control than I did.
I am an avid enough reader and had been reading books like The Millionaire Next Door by William D. Danko, Rich Dad Poor Dad by Robert T. Kiyosaki and The Little Book of Common Sense Investing, by John Bogle.
So it’s not that my wife and I didn’t have solid financial principles floating around in our heads. We did.
We have always tried to take a solid financial approach to life. Here are some of the things that we did do:
- Tracked Net Worth in a spreadsheet and then eventually moved to Personal Capital. (Highly, highly recommend it).
- Always ensured that we had a very large emergency fund (a necessity for any Entrepreneur).
- We socked money away into our 401 (k)’s when we had them.
- We paid down part of our mortgage in 2019 to shorten the loan and lower our interest owed. A great tactic I explored here that will increase your net worth.
- Any bonus’ or big pay days went straight into our investment accounts.
These things all contributed to where we are at today.
But not putting a plan on paper was a huge mistake.
We didn’t have a written plan and we should have.
A written Personal Financial Plan will refine your thinking, and provide the guide rails needed for financial success
Sometime in September of 2020, after being about mid-way through my mini-retirement, I was started to more seriously think about firing my financial advisor, and taking over my own finances.
We were also thinking about potentially investing in real estate and in general trying to figure out the next steps.
So, I finally decided to create a Personal Financial Plan.
Here is the outline:
- Financial Mission Statement
- Financial Goals
- Current Financial Status
- Plan Forward (detailed thoughts/analysis)
- Investment Accounts
- Allocation Strategy
- Financial Advisor Search
- 529s & IRA Contribution Plan
- Real Estate Investments
- New Business Opportunities
- Mortgage/Refinance/Payoff Plan
- Tax Planning
- Investment Accounts
- Action Items
So the above is what I did. And boy was it eye opening and refreshing to have it all written down on paper instead of floating around in an unorganized fashion in my heard!
What is in the plan is not nearly as critical as simply having a plan.
This will really help you to refine your thinking, and help you to make sure that you leave no stone unturned.
The Personal Financial Plan broken down:
Anytime I am creating goals, I like to have a mission statement.
Typically this will be a more broad statement, whereas any goal will end up being more actionable or include a figure. Here are some examples of what I included in my Personal Financial Plan:
Financial Mission Statement:
Become financially independent. Meaning we live only off of our passive income via investment accounts, real estate, or any other business that we own.
Our goal is to achieve ____ per year in passive income to offset all current expenses, and continue to live our current lifestyle.
From there I break down our current financial status:
- Our investment accounts hold ~$___ dollars in their current state at a 3.5% safe withdrawal rate, that would theoretically yield us $___ per year in passive income.
- This means that we need to generate another $___ of after tax income to become financially independent OR we need to reduce our expenses $___ (maybe by paying down mortgage or finding new health insurance).
- Currently we are sitting on a large amount of cash that we are living off of. As a result we are allowing our financial investments to continue to grow independently.
- However, I need to do more research into creating a proper decumulation plan. A lot of this will be dependent on if we purchase a small online business or not, and where our cash flow will shake out in 2021.
I found that by simply writing things down, I was able to really hone my thought process on EVERY financial item.
Plus it felt good to have it on paper instead of floating around in my head.
I then went on to outline each account type in detail and how I want to think about it going forward. This was a detailed analysis and very personal to me, but i’ll give you a little sample:
Detailed Analysis (example):
- Investment Accounts
- Allocation Strategy: It is clear that we are not allocating properly for our age group and future goals. Research show that even if living off of our investments now (in early retirement), it should still be invested more aggressively.
- Financial Advisor Search: Make plans to speak with 3-4 advisors and discuss allocation strategy, early retirement strategy, etc. Consider becoming my own advisor.
- Real Estate Investments
- Create calculator to begin to analyze real estate investment opportunities. Consider using HELOC to make an all-cash offer v. dipping into our cash reserves.
- Tax Planning
- Realize a maximum of $___ in capital gains for 2021.
- Max out IRAs if earned income is over $12K for the year
It goes on and on. My current plan goes on for 4 pages. And the last step of this process is to write down any specific action items that have come out of the plan.
Action Items (example):
- 2021 Q1:
- Fund $____ to kids 529s after the first of the year
- Fund $____ into IRAs after the first of the year
- 2021 Q2:
- Sell out of long-term gains in ___ account
- Sell Proprietary Alternative Fund
- Create decumulation/safe withdrawal plan
- Research and reach out to ___ websites as potential business acquisitions.
The Personal Financial Plan in action
So as you can see, the Personal Financial Plan will help you to create and refine a Financial Mission Statement and Financial Goals.
It will allow you to do a deep dive into each area of your finances and turn over rocks that you may or may not be turning over
Whether your goal is to reach Financial Independence, to fully fund retirement accounts, reduce debt, or to start investing, the best thing that you can do is simply create some sort of plan.
The plan helps to reduce my stress and ensure that my wife and I are both aligned. As soon as I finished my plan, I shot it over to her to review. This is especially critical for us now, since we are no longer relying on W2 income.
I know that it helped me to get more organized. We all take our jobs and hobbies seriously, so why are we not all taking our financial lives more seriously?
At least I know I wasn’t.
The Personal Financial Plan is the solution.
I have to admit I don’t have a written plan. I just have auto draws of a set amount from Vanguard and Personal Capital each month. No budget. We spend what we want, there’s too much money anyway. If the market tanks I switch the auto draws to pull from cash until it recovers. That’s good enough for me. The accounts auto rebalance. No touch required. And we just ignore it and live. If it’s not 100% optimum it’s close enough. Haven’t had a chance to do a ROTH conversion yet, too much income. May be a chance next year or the year after, not a big deal anyway because we won’t have time to convert enough to matter. I like your plan I just think we have aged out of most of the issues a plan addresses. We do have a good estate plan however.
Yeah, for me I think the planning is more about dotting the “I”s and crossing the “T”s than anything. This is how I ran my businesses as well. A lot of the plan might have been way off base or taken longer to execute than we thought, but there is something to putting it down on paper that really helps it to resonate in my mind. But with personal finances if you are fairly aggressive at earning, saving, and investing then you’ll probably end up Financially Independent sooner or later. The rest is more or less the finer details that may move the needle a bit, but not make or break anything. Still – I think that for most people it will be a really good exercise!
I’ve always done my best, most focused thinking when writing. Also what ultimately led to this site.
Writing it down is such an underrated activity that people don’t consider doing. It actually helps us remember things better than if we hadn’t written it down.
The psychological aspects of it will never be something I understand, but no need to understand it to put it into action, right?