Your 5-step guide to personal financial planning

Financial security isn’t just about money—it's about building confidence and reducing stress around your financial future. A solid personal financial plan can also help you work toward life goals like buying your first home, starting that side hustle you've been dreaming about, or building wealth for the long term.

Life throws curveballs, but having a financial plan can leave you feeling prepared to handle whatever comes your way. Whether you're just starting your career or looking to optimize your growing income, this financial planning guide will walk you through creating a plan that works for you.

What is financial planning?

Personal financial planning is the process of creating a roadmap for your money. It's not just about budgeting—though that's important. Financial planning involves:

• Understanding where your money goes
• Setting clear financial goals
• Designing a strategy to work toward your goals

A common misconception is that you have to be wealthy to have a financial plan. The truth is, financial planning works at every income level and life stage. A recent college graduate with student loans needs different strategies than someone with a growing family, salary and bonus potential, but both benefit from having a plan. The key is starting where you are and building from there, adjusting your plan as your life evolves.

Ready to take control?  Here’s your five-step guide to creating your personal financial plan.

1. Assess your financial situation and typical expenses.

The first step is to take an honest look at your finances. Even if you’re not where you’d like to be, it’s important to accurately account for the income you’re currently generating, savings you’ve accumulated and your general spending habits.

You may feel proud of your progress or notice room for improvement; both reactions are perfectly valid. Your initial focus should be on creating an unbiased assessment of what your financial life looks like now, so that you can make smart decisions going forward.

Review your income sources and assets.

In addition to your paycheck, list everything you own that has value, such as:

• Cash in checking and savings accounts
• Retirement and investment accounts (e.g., 401(k), IRA, brokerage accounts)
• Home equity (if you own property)
• Side hustle income or freelance earnings

Understand your debt situation.

Add up your monthly expenses and obligations, such as:

• Rent or mortgage payments
• Student loan payments
• Credit card payments
• Car payments or transportation costs
• Gym memberships
• Subscription services
• Groceries, utilities and other monthly expenses
• Discretionary spending (takeout, entertainment, shopping)

Track your income and expenses for at least a month using a spreadsheet or budgeting app, such as the personal spending tracker from U.S. Bank. Taking this approach offers a snapshot of your overall financial habits without the stress of retracing and calculating years of your financial history.

2. Set personal financial goals.

Next, take time to picture what you want out of life. Financial goals are deeply personal and will be different for everyone--they might include traveling the world, owning a home (or more), starting a business, building a legacy, or planning for retirement.

How to set effective financial goals.

When setting financial goals, it may help to add a "why" to each one. Doing so can keep you motivated as you work toward achieving them.

Also, be as specific as possible by breaking your goals into short- and long-term categories, setting timelines, estimating how much money you’ll need and how much you’ve already saved. This approach can help you prioritize where to put your money going forward.

For example, you might want to start by putting more money toward immediate or short-term goals, such as an emergency fund, as you’ll have time to contribute money to your long-term goals more gradually.

Examples of short-term goals (1-3 years):

• Emergency fund covering 3-6 months of expenses
• Down payment for a home
• Paying off high-interest credit card debt
• Establishing a travel fund

Examples of long-term goals (5+ years):

• Starting your own business
• Saving for a child’s education
• Building wealth
• Maintaining your lifestyle in retirement

3. Create a plan that reflects the present and future.

Your snapshot of monthly income and expenses shows where your money is going. It gives you an objective idea of your fixed expenses, like rent and utilities, and your lifestyle expenses, like groceries and entertainment. It will also illuminate where you can make changes and, ultimately, how much you can put toward your short- and long-term goals.

Now, it’s time to create a plan for where you want your money to go, which starts with making a budget. Whether you’re financially comfortable or still trying to make ends meet, the key is to be realistic about your lifestyle while making room for your financial goals.

Popular budgeting approaches include the 50/30/20 rule (50% needs, 30% wants, 20% savings) and zero-based budgeting where every dollar gets assigned a purpose. Choose an approach that works for your personality and stick with it.

4. Fund your personal goals through saving and investing.

How you fund your goals depends on your timeline.

Should you save or invest?

In general, for short-term goals, a savings account, money market account or certificate of deposit is a good approach. You want your money accessible and protected from market volatility.

For long-term goals, investing gives your money the potential to grow through compound returns. The earlier you start, the more time your investments have to compound.

The easiest way to start investing is to take advantage of an employer-sponsored retirement plan, if you have access to one. Some employers offer a match up to a certain amount. Plus, contributions are directly withdrawn from your paycheck with pre-tax dollars, which reduces your taxable income.

An individual retirement account (IRA) is another easy and powerful tool for investing toward your future. There are several different types of IRA accounts available, including a traditional IRA and Roth IRA, each with unique features and benefits.

If you’re a first-time investor, don't let fear keep you on the sidelines. There are investment strategies for every situation and risk tolerance. The key is consistency. Even small amounts invested regularly can grow significantly over time.

5. Monitor your progress.

It’s important to regularly review your personal financial plan, as your goals and circumstances will change over time. Set an annual reminder and stick to it. Life changes, and your plan should evolve as well.

What to review regularly.

• Progress toward each financial goal.
• Monthly spending patterns/sticking to your budget.
• Emergency fund status.
• Debt reduction progress.
• Investment account performance and allocation.
• Insurance coverage needs.
• Estate planning documents (beneficiaries, will, powers of attorney, trust).

Consider working with a financial professional as your situation becomes more complex. They can help identify opportunities and strategies you might miss on your own.

Creating a financial plan for yourself now can help set you up for future success. With a little preparation, budgeting and consistency, you’ll be well on your way to a financial life that aligns with your dreams and goals.

When it comes to financial planning and guidance for key moments in your life, you don’t have to go it alone. Learn how we can help you develop a personalized financial plan.