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 home, launching a business, or achieving financial security, require a solid plan.

Transforming these dreams into reality begins with a financial plan.

What is a financial plan? 

A financial plan takes stock of your income and spending to enable you to define your goals and work out the steps for achieving them.

Your plan will consider your cash flow, debt, investments, savings and pensions.

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 right now, 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 to save for retirement.  

These are the five most common goals people have that could benefit from 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, although the more you have, the more access you'll have to better mortgage deals. 

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 debt. 

3. Starting a family: Raising a child is extremely expensive, so 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, which will then allow you to plan your goals.

5. Emergency nest egg: You should aim to have at least three months’ worth of expenses saved for emergencies, such as losing your job, 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 or pensions.

Taking the first step is crucial.

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. 

Who can help me create a financial plan? 

For holistic financial planning and creating a goal-based plan, to get started, a financial coach could help.

Although they are not regulated by the Financial Conduct Authority (FCA) to provide specific product recommendations, a financial coach will be trained on how to help you achieve your goals.

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

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

If you need financial advice, consider an FCA-regulated financial adviser.

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 big change in your life.

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