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How to Create a Financial Plan

Megan Branch, Intern

David Bach is the best-selling author of the eight books in the Finish Rich series as well as Fight for Your Money and The Automatic Millionaire. In his latest book, The Finish Rich Dictionary, Bach defines 1001 essential financial terms and provides 10 essays packed with financial advice ranging from skipping your morning latte to avoiding common money mistakes. Below, we’ve excerpted Bach’s steps for creating a financial plan that will really work.

  • Make sure your goals are based on your values. By identifying your top five values, you can then base your goals on them. The more you base your goals on your values, the more likely it is that you will achieve them. After all, can you think of anything better or more exciting around which to plan your spending and investing than the things that really matter to you? And what could matter more than the values by which you and your partner want to live and grow? Ideally, each of these top five values should lead you to a specific key goal. You’ll write down a value and then, right next to it, a related goal on which you want to focus your time and energy.
  • Make your goals specific, detailed, and with a finish line. Wanting something and getting it are two different things. In order to achieve a goal, you must know precisely what it is that you’re after. In other words, you need to take those vague ideas and thoughts you have about what sort of life you’d like and make them specific. Your goal could be to buy a dream house by a lake. Or it could be getting your credit card bills paid off over the next 12 months, going to Hawaii on a dream vacation sometime in the next two years, or cleaning out the house from top to bottom in the next three months.
  • Put your top five goals in writing. Study after study has shown that writing down your goals makes it much more likely that you’ll achieve them. Writing down goals does something to you subconsciously that often brings the goal to you. For one thing, writing down your goals helps you make them more specific. For another, it makes your goals seem more real to you.
  • Start taking action toward your goals within 48 hours. If you don’t get moving immediately toward your goal, even if only in a small way, chances are you’ll never get moving at all. Even if it will take years to achieve a particular goal, there are still things you can do to start moving toward that goal right away. And you can do it within the next 48 hours. By taking this sort of specific, immediate action, your goal becomes even more real to you and, thus, even more exciting.
  • Enlist help. There’s no such thing as a “self-made” person. No one ever reaches a really important goal without some sort of help from some other person. It’s important to share your dreams and goals with the people you love and trust, but it also doesn’t hurt to share them with strangers, too. You never know—the person you’re sitting next to at a dinner party or a lecture may be in the perfect position to help you make your dream a reality. If you keep your goals to yourself, you could miss your big chance.
  • Get a rough idea of how much it will cost to achieve your goals. You need to get a sense of what it will take in dollars and cents to achieve your various goals. This will enable you to do two things: (1) understand how realistic (or unrealistic) your goals may be, and (2) get yourself started on a systematic savings and investment plan to accumulate the money you’ll need to achieve them. Some goals will take almost no time to save for, and some goals may take a lot of time and investing to reach. Since it’s important to know which is which, part of creating a Purpose-Focused Financial Plan involves estimating how much money you think you will ultimately need to pay for your top five goals. So ask yourself, What is this goal going to cost? How much do I need to start putting aside each week or month to help me get there?
  • If you live with a partner, make sure your goals match both your values. What’s the point of being with someone if you don’t share your most intimate dreams and thoughts with them? If you’ve got kids, share your dreams with them, too. Ask them what they’d like to see the family doing over the next three years. Ask them about their values, and then work together on a family list of five things that you all want to accomplish together.
  • Recent Comments

    1. Everyone should learn financial planning, even if they hire someone to make sure they stay on right path. Financial planners won’t always be there for you, meaning you need some level of an in-depth understanding of finance.

      Financial illiteracy is dangerous.

    2. […] How to Create a Financial Plan (oup.com) […]

    3. Ralph Fogel

      Have you had a chance to read the book recommended above?

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