How to establish your first financial plan

You don't have to be a financial wizard to master your financial future.

One of the most basic steps to gaining control of your finances is to create a financial plan. This blueprint helps you identify your goals and map out how you'll achieve them. Whether you’re paying off debt, saving to buy a home, preparing for retirement or building financial security for you and your family, having a plan can help you make smart decisions and stay on track if something unexpected happens.

The good news is that a financial plan doesn’t have to be complicated. Your plan can be as simple as figuring out how to manage your paycheck on a month-to-month basis and putting away enough money to set up an emergency fund, or it can focus on more complex needs such as retirement and estate planning.

These steps can help you create a financial plan that reflects your priorities and goals and grows with you over time.

Step 1: Establish your goals.

The first step to creating your financial plan is to figure out your goals and priorities. What motivates you? It's critical to work toward something, with benchmarks along the way to stay on track. If you are married, you may choose to establish joint goals with your spouse or have a combination of joint and separate goals.

These goals can be both short- and long-term goals. For example, a short-term goal could be paying off debt or saving for a new car. A long-term goal could be buying a home or saving for retirement.

Keep your goals significant and meaningful to you. Instead of saying “I want to save more money,” say, “I’ll save $1,000 for a trip to go see my parents the next year.” Having clear, meaningful goals that are important to you can make it easier to stay motivated and on track.

Step 2: Gather your financial documents.

Once you’ve mapped out your goals, take a look at your current financial situation. Collect documents and information like:

• Recent pay stubs
• Bank statements
• Credit card and loan statements
• Monthly bills and recurring expenses, like utilities and rent or mortgage payments
• College loan repayments
• Insurance policies

Having everything in one place helps give you a realistic look at your finances and can help you spot opportunities to save or cut waste.

Step 3: Evaluate your situation and determine your next steps.

Now that you’ve collected all your financial information, you can assess your financial health and start working toward your goals.

Build a budget.

Now is the time to create a budget. It can help you make sure your spending aligns with your financial goals. It’s not about limiting yourself; it’s about making intentional decisions about how you prioritize and spend your money.

Not sure how to get started, or need help tracking your spending to make sure you’re staying on budget? Try online budgeting tools.

Evaluate your debt.

A budget typically includes your outstanding debt, like credit cards, car loans and student loans.

Paying down high-interest debt can free up money for your savings, while improving your overall financial situation. Even if it’s not currently one of your long- or short-term goals, it’s important to have a plan to get out of debt.

Prioritize your savings.

Part of taking control of your finances means planning for future spending. Retirement may seem far away, but saving early can help you take advantage of time and compounding interest or market returns to help your money grow. Consider taking advantage of employer-sponsored retirement plans like a 401(k) or the Thrift Savings Plan, or TSP, for service members. The key is consistency: Regular contributions, no matter how small, can add up over time.

It's also important to start building your emergency fund. This cushion gives you something to fall back on if you face unexpected expenses, like costly car repairs or financially devastating medical bills.

Most recommendations say you should have enough saved to cover three to six months of expenses, but that can feel almost impossible if you’re just starting out. Start with a smaller goal, maybe $500 to $1,000, and work your way up over time.

Don’t forget insurance.

Insurance can help protect your financial plan from unexpected setbacks. As you evaluate your finances, review your current insurance coverage and determine whether it meets your needs. Depending on your situation, you may want to consider:

• Health insurance to help manage medical expenses
• Auto insurance for your vehicle
• Homeowners or renters insurance to protect your property and belongings
• Life insurance if loved ones depend on your income
• Disability insurance to replace a portion of your income if you’re unable to work

As your life changes, your insurance needs may also change. Service members, veterans and their families may have access to benefits like TRICARE or Servicemembers' Group Life Insurance, or SGLI, but it may not be enough for your long-term financial goals. Making sure you have enough coverage can help protect you and your finances.

Step 4: Take action.

Now that you’ve mapped out your financial blueprint, it’s time to start following it. After all, a financial plan only works if you put it into practice. But don’t feel like you have to suddenly change your whole financial lifestyle overnight. It would be overwhelming and practically impossible to change your spending and saving habits immediately; you’d likely be setting yourself up to fail. Instead, consider making a few small changes at a time, like:

• Setting up automatic transfers to savings so you don’t have to think about it every payday.
• Increasing your retirement contributions by 1% or 2%.
• Paying extra toward high-interest debt.
• Reviewing your insurance coverage.

Track your spending each month and assess how well you’re sticking to your budget and financial plan. Small improvements repeated consistently can lead to big changes over time.

Step 5: Review your plan annually.

Your financial plan will typically need to evolve as your life changes. That’s why it’s important to review it at least once a year to make sure your priorities and goals haven’t changed and to ensure you’re still on track. Also review it after major life events like:

• Getting married
• Having or adopting a child
• Buying a home
• Changing jobs or receiving a promotion

Regular reviews of your financial plan can help you identify whether you need to adjust your budget or increase your retirement savings, for example.

The bottom line

Your financial plan isn’t about predicting every possible future expense. It’s a way to help give your money purpose and create a framework for making informed financial decisions.

By setting meaningful goals, understanding your current financial picture, creating a budget and prioritizing your savings, you’ll establish lifelong habits that support your financial well-being.

If you’re worried about creating your first financial plan on your own, a financial professional can help you identify opportunities to save, explain your options, answer questions and help you develop a plan that matches your goals. Even if you create a plan on your own, reviewing it annually with a financial professional can help you stay on track, especially as your finances become more complex.