DIY financial planning

Making your own financial plan can help you make the most out of your money and plan effectively to meet your goals. If you would like help and tailored advice on putting together a financial plan, you should seek financial advice.

Here are some steps you can take to get started:

1. Assess your current situation

Whatever stage of life you're at, knowing how to properly assess your current situation is an important first step in creating a thorough financial plan.

Making note of the amount that you hold or owe as a list of assets and liabilities can help you gain a clearer picture of your finances.

  • Assets can include your property, savings, pension savings and your investments.
  • Liabilities can include mortgage loans, credit card debt, overdrafts and other loans.

Your total assets minus your total liabilities will give you your 'net worth.'

2. Compare income and expenditure

Once you have a clear picture of your net worth, the next thing you may want to look at is your income versus your expenditure. Income can include your salary and/or pension, income from investments, savings and benefits.

When working out your income it can be a good idea to come up with a figure that represents your income after tax has been taken into account. Expenditure can be harder to assess, but the little things can really add up. Understanding your expenditure can give you a firmer grasp of your finances and make adjustments where necessary.

Moneyhub is a tool that can help you track income, spending, assets and accounts all in one place with minimum hassle.

If your income is greater than your expenditure, the difference between the two is referred to as your "disposable income", which can potentially be used towards building up funds to meet your financial goals. If you want to increase your disposable income you generally have two choices:

  • Reducing your expenditure
  • Increasing your income

If increasing employment income is not an option, you may want to consider ways to get you money working harder, or incorporate tax planning to make the most out of every penny. In addition, after careful analysis of your expenditure there may be ways that you are able to make savings in that area.

If you are spending more that you earn you may want to reassess your situation as promptly as possible and consider getting help with debt.

3. Set your financial goals for the future

Now you have a clearer idea of the means you have at your disposal to achieve your future goals, careful financial planning can help you to meet them.

Dividing your goals into short-term (up to five years), medium-term (fiveā€“ten years) and long-term (ten years+) aims can help you to prioritise and plan effectively.

For example, a short-term goal might be to clear a debt, or save enough for a holiday. Medium-term might be to fund a house deposit or significant home improvements, and a long-term goal could be to achieve a comfortable income in retirement.

Once you have a timeline for your financial goals, work out the mechanisms that need to be put into place for you to reach them. Depending on your financial circumstances and goals, you may want to consider:

  • Saving or investing disposable income, with your goal in mind
  • Ensuring you arrange your finances in a tax efficient way, to get the most out of every penny
  • Choosing an option that will allow you access to your money when you need it, while achieving maximum returns in the meantime
  • Having strategies in place for in case things go wrong. For example: taking out protection insurance or keeping a separate fund in an easy-access savings account for emergencies.

If you do choose to invest you need to take into account investment risk as well as potential for investment growth. You may want to speak to a financial adviser who can help you to plan ahead to meet your financial goals.

4. Plan for the unexpected

As well as your emergency savings fund, you may want to consider other measures to help you stay on top of your finances should you become ill or unemployed, such as protection insurance. You should also consider the impact on your family if you or your partner should pass away; would life insurance help with mortgage repayments and bills after you are gone? It is also essential that you write a will in order to make sure that your assets are distributed according to your wishes after death.

5. Keep on track

Once you've made your plan, it is important to stay on top of it and track your progress towards your goals:

  • Keep all your important records and statements organised and in a safe place
  • Make sure that your partner is on board with the plan, and that you are working together to achieve it
  • Ensure that you are doing everything as tax-efficiently as possible; for example, making the most of your ISA allowance.

If you are unsure about any aspect of financial planning, or feel that you need more information about the options available to you, you can speak to a financial adviser who can give you expert advice tailored to your circumstances.

You may also want to try out Moneyhub, to help you budget and track progress to meeting your financial goals.

Last updated: 01 July 2015