Woman working with calculator and laptop

Steps for a personal financial plan

It's never too early or late to begin financial planning.

Having a financial plan is a way to help you attain life goals. Many people mistakenly believe that a financial plan includes only investing for retirement. While saving for your golden years is an integral component of any financial strategy, you shouldn't forget other fundamental financial plan items like establishing a budget, setting financial goals, investing early and regularly, estate planning and saving for college. Regardless of your experience level, it never hurts to get professional advice on how best to reach your financial goals.

How to create a financial plan

Creating a financial plan is a process that involves many steps and includes looking at your income, expenses and savings. After you have a plan in place, it’s a good idea to regularly review your progress and adjust it to reach your different goals. Here are common steps to focus on when developing your plan.

Establish a budget

A budget is the key to managing your spending and saving. If you don't follow a budget, you're likely spending more than you realize, and saving less than you could be. This monthly budget worksheet is a great resource for getting started.

Begin by tracking your spending for a month. An easy way to do this is by going about your life as usual, writing down every bill you pay and item you buy, from groceries to your daily coffee. At the end of the month, compare what you earned with what you spent. Ask yourself: Were all my expenditures necessary? Did I live within my means? What can I cut out, or at least cut down on?

Next, balance and prioritize your expenses and needs. Obviously, some expenses are fixed, like food, housing and utilities. But when it comes to your other expenses, figure out what you can do without — but be rational and reasonable. You can't cut out every seemingly unnecessary expense; a luxury-free budget is about as sensible as no budget at all. Completely depriving yourself could set off a budget-damaging spending spree, and that doesn't help anyone.

Set financial goals

Your budget will be easier to follow if you have financial goals that are important to you. Set some short-term goals like paying off credit card debt, buying a new car or taking a vacation. Set some long-term goals that may include saving for the down payment on a home, retirement or your children's college tuition.

Once you've identified your goals, give yourself a timeline for achieving them. You'll then know how much of your budget to set aside each month, and the wisest investments for you to choose.

Review your goals periodically so they're always fresh in your mind. If you go off course, don't get frustrated and give up. Simply reassess and continue working toward your goals.

Create an emergency fund

Building an emergency fund is an important step in financial planning that shouldn’t be overlooked. A well-funded emergency savings account can provide short-term financial security and long-term stability.

Unexpected expenses, such as a medical emergency, job loss or major home repair can affect your financial plans. An emergency fund may help you avoid getting into debt and allow you to stay on track with your financial goals.

Save regularly — even small amounts

Having a savings plan and starting with small actions today can lead to big changes over time. It's never too late to make saving a habit.

Many people don't believe they have enough money to become savers. But you don't have to save a large amount of money initially, or regularly. It's perfectly fine to start slow and small and stay small while you adjust to your new financial habit. If you're able to, have the money taken directly out of your paycheck — you probably won't even miss it. We call this "paying yourself first".

Consider including a strategy for increasing your contributions as part of your savings plan. After a few months of investing, when you've adjusted to living on less money, boost the amount you're saving up just a percent or two. You can also look for ways to save lump sums of money, such as when you get a bonus, a monetary gift or your tax refund.

Address high interest debt

Debt from credit cards and payday loans tend to have very high interest rates compared to other types of loans like mortgages or student loans. And sometimes those fees can escalate and get out of control very quickly. As a result, you may end up paying way more money than what you borrowed.

By understanding your debt and incorporating a targeted repayment strategy — like debt consolidation into your personal financial plan — you can save money and move closer towards financial goals like saving for a big purchase, a down payment on a house or put money towards retirement.

Look at estate planning

Although estate planning is very important, it can also be discouraging and hard for many to get started on the task. In a Caring.com 2024 Wills study, they found that only 32% of Americans have an estate plan. While a will is extremely important, other estate planning documents such as a trust or power of attorney for financial or health care matters can be important too.

A will is a good place to start. Your will can help ensure that your assets, such as your possessions, home, other property, savings, and investments, are passed on according to your wishes after your death. If you die without a will — called dying intestate — your assets and possessions will be distributed according to your state's law. Chances are that your state will not share your intentions for dividing up your assets.

Your estate plan should also include a living will, which addresses the health care measures you would or wouldn't like taken if you're ever unable to make such decisions for yourself.

Plan for your child's education

Many parents would love to pay for their children's college education, but some may not think they could ever save enough to cover the ever-increasing cost of higher education. Thankfully, the federal and state governments have options for funding your child's education, such as the Coverdell Education Savings Account, 529 education savings plans, or custodial accounts under the Uniform Gift to Minors Act (UGMA) or the Uniform Transfer to Minors Act (UTMA).

If you consciously make college tuition planning part of your financial plan, along with budgeting, estate planning and saving, you can help yourself stay on the right path toward achieving financial success.

Plan for retirement

According to USA Facts, a survey from 2022 showed that almost half of Americans don’t have retirement savings. But having retirement savings when you retire will allow you to have a similar standard of living to the one you had when you were working.

Incorporating retirement savings into your financial plan can help you ensure financial stability when you are older. A solid retirement plan can help you enjoy a comfortable life after you are retired.

You can start saving for retirement by taking advantage of your employer’s retirement 401k sponsored plan if they offer it or by contributing to other retirement accounts like IRAs or investing in annuities. It's never too early to start planning for your retirement. The sooner you start, the better prepared you'll be to enjoy your golden years with fewer financial worries.

Get insurance

Insurance is also important in the financial planning process. It helps protect the financial future of an individual or family. In cases of unexpected situations such as accidents, illnesses or loss of life, insurance policies can help provide the necessary financial support. Insurance can help cover medical expenses, replace lost income, help fix your home or your car — or in the case of life insurance, help to pay off debts that could otherwise be a burden to surviving family members. Consider contacting a State Farm® agent if you want to review different insurance products like car, home, life or health policies.

And now that you’ve learned about the different steps that make up a financial plan, you may want to read about the basics of investing or how to save for retirement.

This article was drafted with the assistance of Artificial Intelligence.

Neither State Farm nor its agents provide tax or legal advice.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.

Before investing in a 529 plan, consider the plans investment objectives, risks, charges, and expenses. Contact the plan issuer for an official statement containing this and other information. Read it carefully.

Investors should consider before investing whether their or their beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program and should consult their tax advisor, attorney and/or other advisor regarding their specific legal, investment or tax situation.

State Farm Mutual Automobile Insurance Company
State Farm Indemnity Company
State Farm Fire and Casualty Company
State Farm General Insurance Company
State Farm Life Insurance Company (Not licensed in MA, NY or WI)
State Farm Life and Accident Assurance Company (Licensed in NY and WI)
Bloomington, IL

State Farm County Mutual Insurance Company of Texas
State Farm Lloyds
Richardson, TX

State Farm Florida Insurance Company
Tallahassee, FL


Start a quote

Select a product to start a quote.

Find agents near
you or contact us

There’s one ready to offer personalized service to fit your specific needs.

Related articles

How to reach your retirement goals

A retirement calculator to help determine how much to save to reach a financial goal.

Teaching kids to save money

Help children set goals for their money to set up a lifetime of good financial habits.

Calculate spending and see the benefits of spending less

Not to mention you can add up how much those savings can accrue over the years.

How to build credit for teens

Consider these tips to help your teen get off to a good start with their own savings, secured credit card and more.