How to make a personal financial plan in 7 easy steps

They say that “failing to plan is planning to fail”, and nowhere is that more true than in personal finances. Having a solid financial plan is super important for making your money work for you. 

With a financial plan, you’ll want to have a clear outline of your goals as well as the balance of short term and long term spending through your budget. 

Here are 7 easy ways to tackle this:

Before you start diving into investments and savings, it's important to first assess your financial goals and risk tolerance. An example of some financial goals could be:

• Saving for retirement 

• A deposit on a house 

• Your child's education 

Knowing your objectives will help you choose suitable places to keep your money. You wouldn’t want your cash locked in a 5-year term deposit to only realise you needed the money after two years. Not only would you get a lower interest rate, but term deposits usually require you to give 31 days notice before you get your cash back anyway. 

Getting control of debt and planning for how to get it sorted out is important, regardless of whether your long term plan is to have savings in retirement or paying a home deposit. Taking care of student loans, credit cards, and personal loan debts quickly can help. 

Also, if you’re aiming to purchase a home, taking care of debt can improve your chances of getting the loan that you want.

Your emergency fund is a well of cash you keep in case of unexpected expenses. These can range from medical bills and emergency repairs, all the way up to losing your job. For this reason, it’s usually recommended that you keep an emergency fund between three to six months worth of spending. 

Also, another use for your emergency fund is to keep it in an offset account if you’ve taken out a home loan. Essentially, an offset account is an everyday bank account that’s linked to your loan. The larger the sum of cash in the account, the lower your interest repayable on your home loan is. You will usually be able to withdraw from the offset account whenever you need the money.

While keeping long term goals in mind is a significant component of the financial plan, it’s also important that you keep your weekly or monthly budget in mind. Budgeting for both long and short term goals can be useful as a way to manage your expenses. 

For your financial plan, your budget should include the split of cash flowing to short term expenses, the emergency fund, and then towards long term savings.

When making a budget, you should have a good idea of where all your cash is going. A lot of people come to a realisation when they make their budget—there’s a lot that’s spent on stuff that really doesn’t matter. 

When cutting, think about what it is you need or actually use. There’s no point in keeping a streaming subscription when you barely watch anything on it. You might be drinking too many expensive coffees, where making your own may be better. The point is, there are lots of little things that—once you see the monthly costs added up—could be seriously impacting the cash that could be going towards your long term goal or emergency fund.

Some ways of letting your money grow are riskier than others. It’s important to assess what level of risk you find comfortable with as you need to keep your strategy consistent. An inconsistent flip-flop between safe and risky deposits can actually be damaging to your goals in the long run as you’ll likely miss out on the benefits of compound interest.

If you want to gain the maximum benefits of your financial plan, deposit your money where you feel you can consistently contribute without feeling the risk is too overwhelming.

Now you need to think about where you’ll keep your money for your long term goal. Ideally, you’d look for your money to grow at a rate that matches inflation. However, depending on your risk tolerance, this might not be realistic.

Here are some options:

• Savings Accounts are generally the safest option when looking for a place to let your money grow. Current savings account interest rates have reached relatively high numbers, but keep in mind that the interest rate is variable and can fall depending on the cash rate.  

• Term Deposits can be a good way to stash money that doesn’t need to be touched for a while. With the current high interest rate environment, this has made term deposits an increasingly popular option with some savers. 
  

• Share trading can be a good place to put your money, but it’s a risky strategy if you jump in blindly. Always make sure you do your research before investing. 

Also, it’s a good idea to check if your money is held with an authorised deposit-taking institution (ADI) as this will generally be covered under the government guarantee for deposits up to $250,000.

Looking to grow your cash? At Mozo, you can compare high interest savings accounts and term deposits on our main hub page. Alternatively, you can check out some of the providers in the tables below.