How to write a Personal Financial Plan (with real-life examples)

Personal Financial Plan

A written personal financial plan is a must have for anyone working towards Financial Independence or planning for retirement

Do you have a Personal Financial Plan? Is it on paper or just in your head?

No need to feel bad if you don’t though. 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. Yet when it came to my personal finances, I was more haphazard than I like to admit.

Why did I treat my personal finances with such a laissez faire attitude?

How and why did I go so long without a written Personal Financial Plan?

I guess 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:

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, 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
    • Bullets on what is going good/bad
  • 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
  • Action Items

So the above is what I did. I think that you can decide what you want or don’t want in your plan.

The true value in the Personal Financial Plan, is in the act of writing it down.

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 also 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.

Financial Goals:

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:

Current 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 a random fashion in my head.

I go 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
  • Other:
    • 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.

You don’t have to follow my outline, but I urge you to at least get something on paper.

I know that it helped me to get more organized. We all take our jobs and hobbies so seriously, 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.

More from Accidentally Retired

AR Recommends

2 comments

  1. 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?

Leave a comment

Your email address will not be published. Required fields are marked *