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Basics of a financial plan: What it is & getting started

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People often talk about financial plans when discussing their money and savings goals. But exactly what is a financial plan?

Think of it as a roadmap that helps you identify specific actions to take to reach both your short- and long-term goals. A financial plan provides security and helps you make the most of your assets so you can live a life of value and purpose.

You can create a financial plan on your own or with the help of a financial advisor who can make the process easier and less stressful. Let's take a closer look.

What makes up a financial plan?

A financial plan can include many different things, depending on your goals, values and circumstances. It typically involves a comprehensive view of your financial picture and includes items such as your income, debt, investments, insurance and taxes. However, you don't have to think of everything right away. Starting small and adding things later is a great way to keep from feeling overwhelmed.

It also includes your emotions as well as identifies and prioritizes your goals. For example, it may be important to you to own a home, to not burden loved ones as you age, to vacation overseas every year, to be prepared for a disaster or serious illness, to provide college tuition for a loved one, or to leave a charitable legacy. Everyone's values differ, so what matters to you is a key part of how you navigate your finances.

A well-crafted financial plan considers all these things, and it can become complicated as you consider how the individual areas interact. Decisions sometimes involve a trade-off, and a financial plan can help you organize and then balance your resources, responsibilities and priorities.

Example of a financial plan

A financial plan can be hard to conceptualize, so let's consider just one of the many possible examples. Think about what goals you're saving toward. Here are some of the things a plan might include for someone who is saving for retirement while also providing for a growing family and supporting causes they care about.

They may want to:

  • Quantify long-term goals to know what their target is and if they're on track.
  • Create a manageable budget that allocates income among all their goals so they know what to do with each dollar as it comes in.
  • Evaluate how much life insurance and disability insurance are needed to protect against an unexpected loss of income.
  • Set up monthly contributions to a traditional IRA or Roth IRA to build retirement savings.
  • Establish an annual giving plan for their preferred charitable organizations.
  • Align investments with their goals. By working together, their managed accounts can stay properly allocated based on their objectives, risk tolerance and time horizon.

These may not be the steps everyone needs to follow, but everyone can come up with steps of a plan that will work for them.

It's crucial to know that financial planning is a wise move regardless of your income or level of wealth—it will involve different things depending on your goals and resources. One approach may involve paying someone to manage all your investment decisions, but another may be simply using a free coaching program like Thrivent's Money Canvas™ to help you master budgeting, saving and spending.

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How to make financial decisions that reflect your values

When it comes to money matters, you may think it’s all about using your head. Crunching numbers, analyzing spreadsheets to figure out how much you have, and calculating what you need to reach your financial goals.

But shouldn't your financial decisions also be based on your heart—your feelings and emotions, the things that you value and are important to you?

Dive deeper

Why is financial planning important?

Whether you create your own roadmap or work with a financial advisor, a financial plan can give you a sense of clarity and help you understand how to best use your income to achieve your financial goals. Planning is a process that leads to results. Your plan should help you see how everything fits together and let you know what you need to do over time to achieve those results.

If you haven't established a financial plan, there may be opportunities to use your money in more effective ways. Even something as basic as a cash flow analysis can help you see where your money is going and allow you to evaluate your spending and identify ways to repurpose dollars toward things that matter most to you.

Even if you do a good job of saving and budgeting, a formal financial plan ensures that you've thought deeply enough about the details to get the most from your efforts.

How to start establishing a plan

Typically when establishing any type of plan there is a process to follow. When developing a financial plan here are the steps to start with:

1. Identify where you are. To do that, you'll need to review all your financial documents and gather information about your investments, insurance policies, retirement plans and bank accounts.

2. Define financial success so you can outline your goals. Is it retirement by a certain age? Career flexibility? Becoming debt-free? Giving to others? A truly comprehensive plan will include a combination of your goals, along with a timeline of when each goal might be reached.

3. Think of some events that might move you into a worse financial situation. These may be things you want to use your financial plan to address and prepare for.

It can help to talk through a plan with a financial advisor. According to findings in Thrivent's Financial Crossroads survey, roughly two-thirds of Americans agree that they would benefit from talking with a financial advisor, having a written strategy or seeking virtual advice. Beyond understanding the technical aspects of money and investment tools, financial advisors know the right questions to ask to get you thinking about what's truly important to you in the short- and long-term. They can provide guidance to help you develop a customized plan.

For example, they might ask:

  • Are there areas of your finances that you feel need immediate attention?
  • Imagine it's 10 years from now. What do you picture for yourself and your family?
  • Thinking into the far future, what would make you look back and say you lived a great life?

You'll notice these questions aren't strictly about dollars. Financial advisors try to get to the heart of what resonates with you and your loved ones so your financial plan will reflect your individual values. A good advisor won't treat the plan as a sales pitch for their products or tell you what you should be doing; what they will do is help you chart a path for reaching your particular goals.

Implementing your financial plan

Remember, a plan is a set of action items. Once your plan is in place, you'll need to follow through. This might mean opening new accounts, setting up recurring payments or filling out insurance applications. It also means monitoring your progress and updating your plan as your needs change. As you get started, remember that progress takes time, but even small steps can add up. Prioritize yourself and your goals, and you'll see improvements.

Working continuously with your financial advisor and checking in to see if you're on track with your plan can help you stick to your financial goals and avoid getting distracted by comparing yourself to others. At a minimum, you should meet to review your goals and check your progress once a year. However, you also should notify your advisor whenever your life circumstances change and discuss how those changes might affect your plan.

Getting started with your financial strategy

Everyone deserves a financial plan. The approach you take depends on your needs and preferences. If you aren't sure where to start, contact a Thrivent financial advisor. These experts can help you define a clear picture of your finances and work with you to develop a strategy to achieve your ambitions.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

If requested, a licensed insurance agent/producer may contact you and financial solutions, including insurance may be solicited.

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