How to Get Your Finances Under Control, One Small Step at a Time – Step 3 Create a Financial Plan

By glblguy

Eggs in one basket

Proverbs 13:16 – Wise people think before they act.

Having a simple and clear written financial plan is one of the key steps to Getting Your Finances Under Control. The plan will serve as a baseline for your understanding of where you currently are, where you want to be, and when you want to be there. It will also serve in helping you make future decisions.

Your personal financial plan should contain the following:

  1. Summary of your current finances
  2. Current Risk Management Programs
  3. Goals and Objectives
  4. Detailed Plan

Summary Of Your Current Finances

In this section, you should provide two basic pieces of information: 1) Your current Cash Flow and 2) Your Net worth.

Cash Flow

Your current cash flow should list all of your current sources of income and the amounts your receive from each monthly. It should also list off all of your monthly expenses.

If you aren’t sure what your monthly expenses are at this point, just make and educated guess. We’ll start tracking each expense later when we get into budgeting, but for now a good estimate will be sufficient.

Total up your income and expenses. This difference will provide significant financial insight for you. If your expenses are more than your income, than one of the major items you need to address in your Detailed Plan section is reducing expenses. If you income is more than your expenses, than you either need to pay more on your debt or start saving.

Net Worth

Net Worth is a tool used to evaluate your overall financial picture. It basically provide you with a number that is your assets (house, cars, personal property, etc) minus your liabilities (mortgage, car loans, credit card debt, etc). A simple way to think about it is net worth represents how much cash you would have remaining if you sold everything you had, and paid off all of your debts. This of course can be either positive or negative, and for many people in this country, the amount is negative.

To calculate your Net Worth, list off your assets and their actual or approximate value and total them up. Do the same for your liabilities.

Your Net Worth is the total of your assets minus your liabilities. Again, the goal is to have a positive Net Worth.

As before, use the information to feed into your detailed financial plan. For example, I have a goal to increase my assets by 3% and decrease my liabilities by 5% each month. This nets out to an overall 8% increase goal in my Net Worth each month. I track my Net Worth month to month so I can watch it grow.

Current Risk Management Programs

Risk management programs are things like: Life Insurance (and the proper amount), Health, disability, auto, and home insurance. Do you have a will?

List off the risk management programs you current have and determine if they are sufficient. One of rule of thumb, and the one I use is $100,000 in life insurance for every $500 of monthly income. This should be simple term life insurance, not whole life. Whole life is a waste of money. Don’t confuse life insurance with investing they aren’t the same, no matter what your insurance representative is telling you.

Use this risk management analysis to add items to your detailed plan. For example, increase life insurance by $500,000, decrease deductibles on auto, increase home insurance, etc.

Goals and Objectives

In this section, list the financial goals you developed in step 2. Remember, if you are married, list both your spouse’s and yours.

Detailed Plan

This section will list the specific items you are going to do, along with a specific target date for when they will be completed.

At this point in the process, you won’t be able to complete this section fully as we have more work to do yet, but you should be able to get a good start.


We’ll be updating this document as we continue through the process. Your written financial plan will be a living document, constantly changing as you work through the process, learn more about yourself, and as life throws you curve balls (and trust me, when you start to get your finances under control it will). So review it frequently and update it when it needs to be updated. If you are married, do this as a couple.

Remember as well, the financial plan is only as good as the action put behind it. While writing it down will help you execute it, only you can actually make things happen.

Here is a sample financial plan template in MS Word format that you can use to get you started. Feel free to use this and share it with others. Also, feel free to make any modifications, and if you think others might benefit, send your updates to me and I’ll incorporate them into the template. If you don’t have MS Word just let me know and I will format it to any format that works for you.

Good luck, and as always if you have any questions, just drop me a line.

The next article in this series is Step 4 – Create a Budget AND Follow It!

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