5 key components of a financial plan
A strong plan involves every financial element of your life, including short- and long-term goals.
Tags: Planning, Budgeting, Estate planning, Goals, Investing, Savings, Charitable giving
Published: June 19, 2019
You may think you need a certain amount of money to justify a formal 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.
|
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 paying for a wedding or purchasing a house, and include how much money you will 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 will need. |
Investing |
Aim to take advantage of compounding interest as much as possible. Participate in a retirement account, such as a 401(k) or IRA. |
Identify your risk tolerance and outline an investment strategy for your portfolio. Consider working with a financial professional.
|
Charitable giving |
Identify any causes you would like to financially support. Short-term goals might include a donation to a new cause. |
Think about your philanthropy and legacy wishes, which could include goals such as setting up or donating to a foundation. |
Estate planning |
Work with an attorney to set up important documents, such as a will and power of attorney. Consider if you need additional insurance coverage, such as life or disability, and if you’re nearing retirement, long-term care. |
Revisit your estate plan regularly, especially after major life events, such as the birth of a child. 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 late 20s who just received a big boost in her career through a new job and moved in with her long-term 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 married.
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.
Saving:
Short-term goal:
Put money away for the European vacation she and her partner have been talking about taking.
Long-term goal:
Save for a 10% down payment on a home.
Charitable giving:
Short-term goal:
Donate to animal rescue nonprofits, selecting organizations that match her values and budgeting how much she can contribute.
Long-term goal:
Set up a private foundation devoted to the rescue and placement of animals in caring homes.
Estate planning:
Short-term goal:
Review beneficiaries on her retirement accounts and insurance policies, especially because she has new accounts through her job, and create a will.
Long-term goal:
Work with financial and legal professionals who could help her fully develop her estate plan, including designating a healthcare and property power of attorney.
When it comes to creating a financial plan, you don’t have to go it alone. Learn about our approach to financial planning.
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