Guide: How to build a financial plan.

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Home 5 Guides 5 Guide: How to build a financial plan.

Guide: How to build a financial plan.

Financial planning is the process of creating a plan that focuses your financial arrangements on reaching medium and long term goals, without sacrificing too many of your current needs and wants.

Step 1 – What are your Goals?

This first step may seem obvious. But often, trying to think too far ahead can be difficult.

Retirement might seem like it’s a long way off – but the sooner you start planning, the easier it’ll be for you to shape what it looks like. Think about what you want your life to look like in 5 years, 10 years, 20 years time and so on.

Do you want to own a car or a house?

Do you have children? If so, do you want to build a fund for education etc?

When would you like to retire and what could retirement look like?

In our view, your goals need to be realistic, but also exciting. Your financial plan could be with you for decades – things won’t always be easy. The goals you set today will motivate you to stick to your plan, so it’s important that they are meaningful to you.

Group your financial goals into:

  • Short term goals – to be achieved within the next 5 years. For example, saving for a wedding, holiday, house deposit or a car.
  • Long term goals – to be achieved at least 5 years in the future. For example, education costs or a career break.
  • Retirement

Later, we’ll look at how you might decide where to invest or save money to achieve these three types of goals.

Step 2 – Track your Cash Flow

Before putting together your financial plan, you’ll need to get a sense of your income and outgoings.

Take a look at your bank statements and create a spreadsheet. Include income in one column and commitments in the other.

Think about what you can sacrifice to free up funds to achieve more important long term goals. Check that you are getting the best value out of any existing credit commitments or utilities. If you are paying for services you do not use, cancel them.

Allocate your monthly outgoings into 3 categories:

  • Current Needs and Debt Repayment – housing, utilities, food and other bills
  • Current Wants – entertainment, holidays, going out and hobbies
  • Savings

Step 3 – Budget

Use the numbers you’ve put together above to create a budget.

A common rule of thumb is to allocate your Net (after tax) household income so that 50% of it goes towards your current needs, 30% of it to your current wants and 20% towards saving and investing to fund your financial plan.

Remember, this is just a rough guide – you may need to commit much more than this to meet your financial goals!

If you can’t put away 20% to fund your financial plan, that’s ok, commit what you can for now and focus on managing your outgoings and improving your income so that you can set aside more in the future.

Step 4 – Get Free Money From Employer Matching

It’s estimated that some 3.2 million workers are missing out on £2bn a year of free employer cash.

This is Money

One of the first things we ask new customers: Are you making the most of your workplace pension scheme?

The government has set minimum levels of contributions that must be paid into your workplace pension by you and by your employer.

If your employer chooses to only pay the minimum amount of pension contributions (figures as of 2020), it could work out as follows:

  • You pay – 5% of your qualifying earnings
  • Your employer pays – 3% of your qualifying earnings

In some cases, your employer may offer an even higher level of matching. For example, it’s not uncommon for larger companies to match or double your contributions far beyond the minimum levels.

Check with your employer what their policy is and do whatever you can to make the most of it. This might mean sacrificing an element of the ‘current wants’ or ‘savings’ section of your budget – but might be worth it in the long run.

Step 5 – Prepare for Emergencies

One of the first things you’ll need to do with the portion of your income you’ve set aside towards your financial plan is create an emergency fund. It’s up to you how big a fund you build, but you should aim to save enough to cover small emergencies.

A reasonable target would be to save 2-3 times your monthly income. This will mean that you wont have to take out credit should your boiler blow up, you are unable to work or your car breaks down.

Using an emergency fund rather than taking out a loan or a credit card to pay for emergencies could improve your credit score and help you receive better rates on your mortgage.

Step 6 – Pay Off High Interest Debt

Short term debts like loans and credit cards can significantly damage your chances of achieving your long term financial goals. Interest rates on some credit cards can be upwards of 18%pa, resulting in you paying 2-3 times what you borrowed. It may make sense to consolidate high interest debts onto a lower rate to reduce the amount you pay to borrow the money.

Once you’ve built up an emergency fund, focus on repaying these high interest debts. When you’ve tackled these, you can start to look at investing to build your savings.

If you’re struggling with debt, you can find help here.

Step 7 – Invest or Save to Achieve your Financial Goals

Having laid financial foundations, it could now be appropriate to start looking at investing or saving some of your regular income. If you already had savings above and beyond your emergency fund, you could look at focusing these towards your financial plan too.

One of the most important things to think about is the relationship between risk and reward:

This graph shows how higher risk investments are likely to be more volatile than lower risk investments.

When investing you should be thinking about which ‘tax wrapper’ is most appropriate – tax wrappers include ISAs, LISAs and Pensions. Within your chosen tax wrapper, you’ll probably invest your money. Which investment you use should be driven by your financial goals, attitude to risk and capacity for loss.

Step 8 – Reinforcing your financial plan

With every step you’ve taken so far, you’ve started to build a plan and secure your financial future. As your career progresses you’ll want to further reinforce your financial plan by:

  • Increasing your pension contributions
  • Adding to your emergency fund as your outgoings grow
  • Consider taking insurance to protect you or your family in the event something unexpected impacts your financial situation, such as death, critical illness or loss of work.

What people are saying:

sam tapsellsam tapsell
17:17 11 Mar 24
Chris has been super helpful, always provided honest advice tailored to my situations. Highly recommend!
Ann-Marie JonesAnn-Marie Jones
17:47 18 Jan 24
Highly recommend Chris at Exley Financial Planning. He was really helpful and has walked through each stage carefully with patience and helped secure us a better rate on our mortgage.
Jasmine ScottJasmine Scott
20:21 18 Jul 23
I’ve had the pleasure of working with Chris now for over 6 years. He’s arranged my last three mortgages for me successfully. I’ve always found Chris to be highly efficient, and clear and open in all of his communications. He’s also taken the time to explain my options and be at the end of a phone. I trust him implicitly and would recommend him to anyone looking for sound financial advice and support regarding money matters.
Mike WilliamsMike Williams
16:37 18 May 23
Couldn't recommend a better financial planning advisor.Chris's help, advice and knowledge base was second to none.
Deborah NDeborah N
11:41 18 May 23
Chris was outstanding. His service was attentive, comprehensive and he displayed an impressive knowledge of his field. He was always easy to contact, friendly and returned calls and messages promptly. His help was invaluable. We are incredibly grateful for all his assistance and wouldn't hesitate to recommend him to others.
Jay ProbertJay Probert
12:02 07 Jul 22
Chris was referred to my wife an i by a neighbour. Despite conducting all communication online (emails/MS Teams calls) at all times Chris has remained personable and responsive. My wife and i are far from experts in this field but Chris' calming approach to the process has been most reassuring and would strongly recommend his services to others. Thanks Chris.
Alexia BowlerAlexia Bowler
08:27 25 Apr 22
We recently used Exley Financial Planning (Chris) for our mortgage and they were so professional, efficient and listened to our every need. We got some very good advice and felt confident that they had our interests at heart. I would use Exley Financial Planning again for anything finance related, and feel relieved we've now got someone who takes us through documents and processes (most of which are fairly confusing!), step-by-step. Thanks Chris!
bethan boddybethan boddy
11:55 08 Mar 22
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Ellen MorganEllen Morgan
08:26 31 Mar 21
I can’t thank Chris enough for all his help throughout my purchase. It hasn’t been an easy process buying my first home during a pandemic, but Chris made securing a mortgage a breeze! Chris is very knowledgable and was honest with me from the outset about what was affordable for me and the mortgages available. It has been a long process for me, but Chris is always available on the other end of the phone to answer any questions I had and kept me updated every step of the way. Brilliant service, I would highly recommend! Thank you Chris!
Rod DCRod DC
19:42 19 Aug 19
Chris has been absolutely fantastic in helping us secure our mortgage offer.Our own situation was a bit more complex due to work and contracts but Chris has worked extremely hard to find us a mortgage that suits us.The quality of service has been top notch from the first meeting. Communication has been excellent and we have been constantly updated on the situation and progress of all processes.It has been so worth employing the services of Exley and I cannot recommenced the service more.
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