Financial Plan
BeginnerA financial plan is an overall strategy for managing your money to reach your financial goals. It brings together budgeting, saving, debt, investing, insurance, tax and retirement into one picture.
A budget deals with one month at a time. A financial plan looks across years and decades and asks how all parts of your finances fit together.
A typical plan starts with where you are now: income, spending, savings, debts and net worth. It then sets out your goals, such as an emergency fund, a home, children's education or retirement, with target amounts and dates. Finally, it lays out the steps to get there, such as how much to save each month, which debts to repay first, how to invest and what insurance is needed to protect against setbacks.
For example, a plan might say: build a 9,000 emergency fund in the next 12 months, then pay off a credit card balance, then raise retirement contributions from 5% to 10% of salary.
A financial plan is not fixed. Life changes, such as a new job, a child, a move or a market downturn, mean the plan should be reviewed regularly, often once a year, and updated so it stays realistic.
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