9 Components to Financial Planning that will help you succeed

finance Mar 18, 2021

We often believe that financial planning should be left with experts. While there is some truth in that, being financially savvy means creating a financial plan for yourself whether or not you choose to work with a financial planner. 


Not everyone can afford a financial planner, and gone are the days where you leave your money decision to other people to decide for you. Here at Boss Of My Money, we believe in building financial confidence. A part of that is knowing how to create your own personal financial plan until you are ready to work with a financial planner. 


What is financial planning?


Financial planning can simply be described as a detailed forecasted plan showcasing your needs, wants and wishes at various stages of your life. Your financial plan will include details about your income, spending, savings, debt repayment, protection, retirement, wills, estate planning and investment plans for the future. 


Once you've created an outline for yourself using our steps below, you can always work with a financial planner to develop the more complex areas like wills, trust, estate planning and retirement planning. 


Why is financial planning important 


Financial planning is the process of mapping out a strategy to achieve your personal finance goals. Whether that's managing your everyday spending, saving for a holiday, buying a house, savings for your child's education or building generational wealth. 


Without a solid financial plan in place, it can take longer to achieve these goals. The sooner you can master the art of financial planning, the fewer money mistakes you are likely to make. Having a sound financial plan will help you stay focused and stay on track with making your financial dreams a reality.


How to do a financial plan for yourself 


If you are ready to get serious about your financial situation and create a tailor-made financial plan, use these 9 steps to get you started. 


Step 1 Set your goals for the year, 5 years and 10 years


Goal setting will help direct you towards what you want to achieve for the year. Don't overcomplicate it. The key is simplicity and giving yourself realistic deadlines to meet your goals. The goals you set for yourself are dependent on where you are on your financial journey. This includes your income, how much debt and savings you have and the plans you have for the future. Remember to review your goals regularly and allow room for flexibility. 


Below are two examples to help you understand how to set financial goals.


Meet Sarah

Sarah is a single 25 year old who works full time and has a mortgage. She has maxed out her overdraft of £1000 and has accumulated credit card debt of £1500. Sarah has £300 in savings and no investments, including pension.

In short, Sarah may want to focus on paying off her overdraft and credit card debts. She may also want to increase her savings and start to contribute towards her pension, even if it's the minimum. She should begin to work on expanding her knowledge about finances to help her stay out of debt.


Sarah's 12-month goals might look something like this:


  1. Create a budget and eliminate the need to use overdraft and credit cards for essential expenses.
  2. Pay off overdraft and credit cards.
  3. Save £1000 towards my Emergency Fund.
  4. Start to contribute the minimum towards pension.
  5. Read one financial book every quarter.


Meet Jack

Jack is a single parent of a five-year-old. He earns a decent wage, pays all his bills on time, and tends to have extra cash left each month. However, he ends up spending it all and doesn't know where it's going. He spends a lot on eating out and buying toys. He has £3000 in credit card debt and £1000 in savings. Additionally, Jack is contributing to minimum payment towards his pension and has no life insurance.

His priority is to find out where his money is going, clear debts, and increase his savings. He should consider having a savings account for his son for education, max out his pension contribution and ensure his family is protected against the unforeseen.


Jack's 12-month goals might look something like this:


  1. Create a budget and track spending by keeping a journal.
  2. Create a savings pot for eating out and buying toys. Only spend a certain percentage of the pot per month.
  3. Create a debt management plan to pay off credit cards within 12 months. Cut down on eating out and buying toys (cook homemade meals/look for free/discounted activities). Use the extra cash from this to pay off debts.
  4. Keep the £1000 as an emergency fund and work towards savings of £2000 by the end of the year.
  5. Increase Pension contribution once credit card debts are paid.
  6. Find the best insurance policy to ensure his son is protected if anything was to happen to him.

As you can see, one size does not fit all when it comes to setting financial goals. Be true to your circumstances and don't try to keep up with the Jones, as the Jones can barely keep up with themselves! Don't run before you can crawl. Your only competition is yourself. Decide on goals that are important to you and begin to tackle them one by one.

Step 2 Organise your finances


Financial success can not be achieved in chaos. Use these questions to help you get your financial house in order

  • Do you know your total monthly income? 
  • Do you know your total monthly outgoings?
  • Do you know how much debt you have? 
  • Do you know what your interest rates are? 
  • Do you understand the terms and conditions of your contracts and insurance? 
  • Do you know how much savings you have? 
  • Do you know what your pension is worth? 
  • Do you know where to find relevant documents when you need them?
  • Husbands/wives should something happen to your partner, would you be able to manage your household finances?


Step 3 Create a budget


Many people see budgeting as limiting; this is not the case. Budgeting is one of the most empowering financial activities you can give yourself to create wealth. By having a weekly or monthly budget, you get to control what happens to your money. Budgeting will help you find extra cash to put towards savings and paying off debts. It will also help you to plan for future goals. If you want to build wealth, be debt-free and own assets, budgeting needs to become your basic financial principle.

When it comes to budgeting, it's a matter of what works well for you. You may have to try out various budgeting methods before nailing the right fit. Learn more about how to master your budget here.


Step 4 Start a savings challenge- begin with the 'beginner saver challenge.'


Living payday to payday may seem like the norm, but there is so much more possible for you. Imagine having 1-3 months savings worth of monthly expenses in your bank account, which can allow you to deal with unexpected events. Imagine being able to take extra time off work if you fall ill without worrying about bills. Imagine replacing items with cash as you have the money to pay for them immediately and not get into debt over £200 for new tyres. Savings give you a cushion to fall back on should anything go wrong- which it inevitably will. It's just a matter of when. Savings allow you to have the things in life that make you happy but not at the expense of getting into debt.

Make this a year where you enjoy saving just as much as you enjoy shopping. To start you off- Sign up to Boss Of My Money Newbie Saver. Where you will save £780 in 12 months. Each month you will save according to the month you are in—January £10, February £20 and March £30 and so on. If you are already saving and would like to save towards a different savings pot, you can use this method to do so without breaking the bank. Download the Savings Sheet here.

Step 5 Create a debt- payment plan


Good-debt, lousy debt! Debt is debt, and we should never be ok with being in debt. It should not be the first thing we run to when we are short of cash. Make up your mind in 2021 to have a debt management plan and decide to tackle each debt using the debt avalanche or the snowball method. You can find out more about how they differ here. If you are living payday to payday and can't afford to pay more than the minimum on your debts, consider cutting down on non-priority expenses or increasing your income. Whatever you decide, make it a priority to become debt free in the next 3-6 months or 1- 3 years.

Step 6 Create an emergency fund and other savings pots for your wants and wishes! 


If a financial crisis like a broken boiler, defective fridge or loss of income were to occur, would you have a cushion to fall back on? Remember your savings should not be linked to an investment as your capital could be at risk and may not be accessible as and when needed. You can open a flexible saving account that allows you access to your money at any time and where your capital is protected. While you may not get much interest for your emergency or short term saving goals, which is ok as you are using it as an emergency fund and to spend within a short period of time and not an investment. For longer-term saving goals like buying a car, starting a family or going on a dream holiday in 2-5 years, you will find that if you lock your savings down or deposit monthly and not withdraw until the agreed date- you may get a better interest rate. Find out from your bank what is available and decide on an amount to contribute monthly to help you grow your emergency fund and save towards your wants.

Step 7 Open a Lifetime ISA (If you are 18-39 years old)


A great place to save for a deposit or plan for retirement is in a lifetime ISA. You can save up to £4000 every tax year and get a 25% bonus of £1000 from the Government. That means every tax year, you could have £5000 towards your house deposit and towards your retirement. This really is a no brainer for anyone concerned about how to save for their deposit or start building an attractive pension pot. 

Step 8 Start thinking about investments


Investing might seem far off for some people. The stock market can be confusing and complicated to get your head around. However complex, it may be-it should not prevent you from learning about investments. I would not suggest to anyone to invest in something they do not understand. Nevertheless, the truth is, investing is what will give you real wealth. Investing allows your money to make money and that money to make more money. You can invest in property, assets, gold, business or the stock market. If you are new to investment, begin by learning about how the investment you are interested in works. Speak to people that have tried them and understand the risks involved before putting money towards it. Never invest what you can't afford to lose, but always be aware that sometimes you may lose. Diversify your investments. Spread them out so that if one area is doing well and another isn't, you are still making money.

Step 9 Put proper protection in place


It's very easy to focus on the bright shiny objects in your financial plan. Remember that while building wealth and working towards your financial goals, the loss of income and death could be detrimental to your life and your family. Therefore, you will want to assure against this risk by ensuring the proper protections are in place, such as; content insurance, appliance insurance, mobile phones and laptops, life insurance, health insurance and income protection insurance. This list is not exhaustive. 

What makes you a good financial planner


Financial planning is not as complicated as some may think. All you have to do is begin! It is advisable to review and update your financial plan every 2-3 years or when your circumstances change. For example, getting married, having a baby, buying a house, or changing careers, a change in employment status, change in health and so on. If you are a couple or have children, everyone in the family must be involved in financial planning. By having them involved, you can ensure they commit to achieving the goals agreed.

Tea. Music. Goals.  


Call a family meeting, put the kettle on, switch on some music and start your financial planning today!




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