5 key components of a financial plan

A strong plan involves every financial element of your life, including short- and long-term goals.

You may think you need a certain amount of money to start a financial plan. However, a written plan can help you take control of your money and work toward your financial goals no matter where you are in life.

Review these elements of a financial plan and how they may change for short- and long-term goals.

Anatomy of a financial plan
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Short-term planning

Long-term planning

 

6 months to a few years

More than a few years

Budgeting

Track and categorize your monthly expenses. Adjust your spending as needed, and plan ways to pay down high-interest debt, such as credit cards.

Revisit your budget when you have significant changes in your life, such as a job change, marriage or divorce. You might also design a budget for your retirement years in advance.

Saving

List your short-term goals, such as creating an emergency fund or purchasing a house, and include how much money you'll need.

List your long-term goals, such as retiring by a certain age or paying for your child’s education. Online calculators can help you estimate the savings you'll need.

Investing

Take advantage of compounding interest as much as possible. Invest in a retirement account, such as your employer's 401(k) or an individual IRA.

Identify your risk tolerance and outline an investment strategy for your portfolio. Consider working with a financial professional.

 

Charitable giving

Identify and donate to any causes you would like to financially support. 

Think about your philanthropy and legacy wishes, which could include goals such as setting up or donating to a foundation.

Estate planning

Determine what is important to you and your family. Work with an attorney to set up important documents, such as a will and power of attorney. Then consider if you need insurance coverage such as life or disability, and if you’re nearing retirement, long-term care.

Revisit your estate plan regularly and update as necessary, especially after major life events. Consider working with a financial and legal professional to ensure you have the right documents in place to carry out your wishes.

 

Let’s take a closer look at these financial planning elements in action. Consider a woman in her 30s who just received a big boost in her career through a new job and moved in with her partner. Working with a financial professional can help her identify, prioritize and pursue the goals that matter most to her.

 

Financial Plan:

  • Budgeting:

    • Short-term goal:

      • Reevaluate her budget for her new living situation and figure out how she and her partner will split expenses.

    • Long-term goal:

      • Outline how she and her partner would combine their finances if they marry.

  • Saving:
    • Short-term goal:
      • Put money away for the emergency fund and vacation she and her partner have been talking about.
    • Long-term goal:
      • Save for a 10% down payment on a home.
  • Investing:
    • Short-term goal:
      • Figure out what to do with the retirement account from her previous employer and allocate extra funds from her pay increase to max out contributions to her new 401(k).
    • Long-term goal:
      • Work with a financial professional to develop a diverse investment portfolio that could include brokerage accounts, a health savings account (HSA) or traditional and Roth IRAs.
  • Charitable giving:

    • Short-term goal:

      • Donate to charities that match her values, budgeting how much she can contribute.

    • Long-term goal:

      • Set up a donor-advised fund devoted to her favorite charity.

  • Estate planning:

    • Short-term goal:

      • Review beneficiaries on her retirement accounts and insurance policies, especially because she has new accounts through her job. Create a will that reflects her wishes.

    • Long-term goal:

      • Work with financial and legal professionals to help her fully develop her estate plan, including beneficiary planning and designating a healthcare and financial power of attorney.

         

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