The 5 Minute Guide to Financial Planning

The Momentum UK Team 23 January 2014

However much money you have, you could benefit from some level of financial planning. From taking control of your everyday spending to making the most out of every penny in the long term, sound planning is the essential foundation for a good financial future.

In this 5 Minute Guide we’ll take you through the basic steps you can take to start building a useful financial plan.

Know what you’ve got

The first crucial step towards creating a financial plan is knowing how much you have. First, add up your total monthly take-home income, including any benefits, bonuses, and investment income you receive.

Next add up all your monthly essential spending—utility bills, rent or mortgage payments, grocery bills—and subtract this figure from your total income.

The amount left is your “disposable income”, which can be used for other spending and to put towards your goals. This is the figure to take into the next step: setting your budget.

Set a budget

Budgeting is not just for those struggling to make ends meet from month to month. A good budget can help you take control of your spending habits, see if you could spend better, and where you have the opportunity to make savings.

To find out more about making a potentially very useful budget, check out How To Make a Monthly Budget.

Any spare cash can be used to work towards your financial goals.

Set your goals

Whether you’re aiming to get out of debt, saving for a dream holiday, a comfortable retirement or a deposit on a house, setting clear and achievable goals for yourself can help you to get the things you want.

Work out how much you can realistically set aside each month to achieve your goal, and then make sure you stick to your plan! (Our free tool Money Hub can help with this – you can easily track your spending to stay on target for your budget and any longer term goals).

Plan for the unexpected

Track your goals with MoneyHub However detailed your financial plan is, a sudden expense or change in your circumstances can cause major problems if you haven’t prepared for it in advance.

Financial advisers generally recommended you have an emergency or "rainy day" fund of at least three months’ salary, although what you’ll need in an emergency will depend on your circumstances. It can be a good idea to keep this fund in a easy-access account to avoid penalties if you need to use that money at short notice. This could be to pay a big bill or to help tide you over for a little while if you suddenly become unable to work.

You may also want to consider taking out protection insurance which can offer a financial cushion if things go wrong. Find out more by reading our guide to protection insurance.

No one wants to think about the worst-case scenario, but planning for it now can give you peace of mind and save you and your family unnecessary hardship later.

Keep track

There’s no point in making a plan if you simply forget about it; keeping track of how you’re doing is crucial. You'll need a way to check regularly to make sure that you’re on budget and progressing towards your goals.

Money Hub from can help you to track your budget from day to day, and measure your progress toward long-term goals such as house purchases and retirement. Find out more about Money Hub.