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What is a financial plan and how can you make one?

What is a financial plan? Chances are, you don't have one.

Yet, your future goals, like owning a second home, launching a business, or achieving financial security, require a solid plan.

Transforming these dreams into reality begins with a financial plan.

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What is a financial plan? 

A financial plan takes stock of your incomings and outgoings and enables you to define your goals and work out the steps for achieving them.

Your plan will consider your cash flow (what comes in, what goes out), any debt you have, investments, savings and pension provision. 

Why do I need a financial plan? 

A financial plan makes big life goals less daunting.

It will help you focus on short term steps and what you might need to consider in the future.

Setting financial milestones enables you to see the progress you’re making towards your goals. 

Even if you don’t have a big life goal in sight right now, chances are that you might want to save for a house deposit or build an emergency fund to protect against future insecurity.

Or perhaps you want to review how much money you’ll need saved for retirement.  

These are the five most common goals people use to get started with a financial plan: 

1. House deposit – worried you’ll never escape the rental trap? Start saving small amounts now to build up a pot. You’ll need at least 5% of your home’s value saved as a deposit, though the more you have squirreled away, the more mortgage deals you’ll be able to consider.   

2. Wedding fund - getting married continues to be one of the biggest expenditures besides buying a house and the last thing you want to do as you start married life together is worry about getting into major debt. 

3. Starting a family – raising a child from birth to 18 could set you back in the region of £160,000 according to various research. Early planning will help you factor in everything from school fees to student loans

4. Retirement – there’s no such thing as starting too early when it comes to pension planning. Think about what sort of retirement you’d like and when you’d like to stop working, then you can put goals in place. 

5. Emergency nest egg – you should aim to have at least 3 months’ worth of expenses saved for emergencies, such as losing your job, big home repairs or an unexpected vet bill. 

The most important thing to remember is that a financial plan is available to everyone.

It’s not dictated by your salary or your asset level.

Start small by putting money into savings pots, house funds, wedding funds, pensions or life insurance.

Taking the first step is crucial and once you’re on the path to saving and creating a financial plan, you’ll feel more in control of your money and your future. 

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Who can help me create a financial plan? 

For holistic financial planning and creating a goal-based plan, to get started, it’s best to work with a financial coach.

Although not FCA regulated to provide specific product recommendations, a financial coach will be trained on how to achieve goals.

They can provide you with financial guidance (not advice) and talk through the pros and cons of different options.  

Your financial plan is unique, shaped to fit your goals, your budget and your lifestyle.  

Learn more: what's the difference between a financial adviser and a financial planner?

How often should I check my financial plan? 

Your circumstances will change so try and revisit your plan at least once a year, or more often if there's been a radical change in your life.

Work with your financial coach to identify new goals, modify existing ones and track your progress. 

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About the author
Kate has written for leading publications and blue chip companies over the last 20 years.