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How to Write a Financial Plan


Last week, I wrote about how most people don’t have written financial plans. This prompted one reader to comment, “what would a written plan look like?” Encore asked Eileen Freiburger, founder of ESF Financial Planning Group, to outline the main elements of a financial plan.

1. Create a financial snapshot Before writing a plan, you need to know where you stand. First, document your cash flow, making a list of all assets, income and expenses, including credit card and loan debt, in Excel or in a notebook, she says. To better understand your expenses, gather three months worth of bank statements and credit-card statements so you can see how much you’re spending each month, she says.  Once you’ve gone over those statements, you will then also need to write down larger, less-frequent expenses — like property taxes or that annual vacation — that you tend to make each year or every few years.

2. Make a list of priorities After taking stock in what you have, the next step is to figure out where you want to be. Is retiring at 65 the goal? Or is buying a second home a bigger priority? Until one establishes their priorities, it’s impossible to sort out how to reach them, Freiburger says. A discussion with a financial adviser may help bring one’s priorities into focus, she says.  Once you know them, write out a list of everything you want to do and then rank them by what’s most important to you. Note that you should put getting out of debt and saving for retirement at the top of your list, but it’s up to you as to where you rank that vacation in Aruba or that fur you want to buy.

3. Chart your savings Now comes the hard part — determining how much you need to save to reach your goals. It’s not as simple as saying “I’ll save 10% of my income,” Freiburger says.  First, look at the goals on your list, like getting out of debt and saving for retirement, and figure out how much each will cost.  If you want to get out of debt, check out this calculator, which will show you how much you need to put towards your debt each month to be debt free. If you want to figure out how much you’ll need for retirement, click on SmartMoney’s retirement planner here; once you know that, you can figure out how much you need to save each month to make it happen here.  For each of these goals, there’s likely an online savings calculator (here’s a simple one that works for anything from saving for a vacation to buying a car) that can help you calculate how much you’ll need to save to fund the goal.

Once you know what each goal will cost and how much you will need to save each month to achieve the goal (you should put all of this into written form, either using a spreadsheet or a notebook, Freiburger advises), you can start saving to make them happen. It’s easy to set up an automatic money transfer from your checking account to a savings account to help pay for things like vacations, she says; consider automating retirement savings as well.


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    • I think the worst way to do retirement planning is to save. Don’t get me wrong but all the time I see financial planners trying to reach at that elusive amount which is good enough for a person to retire. Only if the world was so linear and simple like excel based financial models!!
      The best way to retire early, rather the only possible way is to create a parallel and sustainable income stream (apart from your regular job) better still try creating multiple, even though small, parallel income streams.

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    • A financial plan is definitely something that every investor should develop and maintain. These plans are normally called Investment Policy Statements (IPP).

      I would suggest that the IPP be in writing. A formal document that will help maintain discipline and long-term focus.

      The IPP should incorporate one’s investment and personal objectives over the short, medium, and long-term, as these will likely be quite distinct and require different planning strategies. The plan should also include personal constraints that will impact wealth accumulation.

      As well, one needs to consider the time horizon, personal risk tolerance, phase of life cycle, etc.

      I have written a few articles on Investment Policy Statements that expand on these comments. They may be found at http://www.personalwm.com.

    • Thank you for the follow up, I’m hoping it will be helpful to many. I was that reader who asked the question: “what would a written plan look like?” on the last piece. For myself, it was basically a rhetorical question, as I’ve been planning for years, for the early retirement that I am now enjoying. I know though, that so many people are simply too scared to even start down the road to discovery, so they do nothing. The earlier you find out the real answers, the better chance you have of making changes where needed, and truly reaching those goals, whatever they may be. Keep it up!

About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.