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“If you fail to plan, you are planning to fail.” Benjamin Franklin’s famous quote may sound cliché, but it couldn’t be more true when it comes to your finances.
Without a financial plan, life can feel like a daily struggle.
Ever wondered why, despite juggling different rakets or working 24/7, you still don’t have money left for savings? An insufficient income isn’t just the cause—it’s your money habits that could be working against you.
Financial planning is an opportunity to assess your present situation and prepare for your financial future so that you won’t repeat your past mistakes. Making a financial plan enables you to have greater control over your finances. Instead of just working for money, you make money work for you.
If you’re ready to start financial planning, then props to you for making such a good decision! Now what you need to do is to educate yourself about what the process entails before you proceed to create your financial plan.
Here’s a detailed financial planning guide you can refer to on your journey to financial freedom.
What is Financial Planning?
Financial planning is the process of managing your finances properly. It involves identifying your financial goals and the steps you’ll take to accomplish them. Doing so lets you know if you’re making progress and if you should adjust your strategies.
You can plan your personal, family, and business finances. But for the purpose of this guide, we’ll focus on personal financial planning.
Why is Financial Planning Important?
Financial planning is not just for the wealthy. In fact, you need it more if you’re struggling financially. Regardless of your financial situation, you’ll benefit from making a financial plan in different ways.
1. Being more mindful of your money habits
Do you know where your money goes? If not, you won’t have any idea how your spending—even the smallest purchases—affects your overall finances. Without such knowledge, you’ll just be spending money here and there and be shocked one day, wondering where all your money went.
Financial planning changes the way you view your financial habits. With an accurate picture of your present financial situation, you know how much you should be earning, saving, and spending to keep your finances in good shape. This helps you manage your income and cash flow better.
2. Making wiser financial decisions
It’s difficult to make well-informed decisions if you don’t have enough data. Through financial planning, you get a clear view of the real state of your finances and what you want to achieve in life. Such insights will guide you through making the right choices to fulfill your goals.
3. Preparing for financial emergencies
A good personal financial plan outlines the actions you’ll take to ensure any emergency is covered no matter when it happens.
Events such as job loss, death or serious illness of a loved one, and accidents that lead to major life changes can mess up your finances big time. Financial planning pushes you to have enough insurance coverage and investments in place to soften the blow of financial emergencies.
4. Resolving financial issues
Financial planning enables you to discover any unknown problem and fix it before it gets worse. For example, if you find out that a certain high-interest loan you took out hasn’t been fully paid for several months, you’ll take immediate action to prevent your debt from getting bigger.
5. Becoming financially independent
Financial dependence is ingrained in Filipino culture. Most of us live paycheck to paycheck that we have a unique term for it: Petsa de Peligro. Each time you’re short of cash, you borrow from family and friends to get by until the next payday.
Another cultural aspect that’s uniquely Pinoy is the tendency to rely too much on parents or children for financial support. There’s some sort of social expectation that adult children should pay for their aging parents’ living expenses, and old parents should help their financially challenged yet physically able children.
Want to break free from such vicious cycles? Financial planning is the first step to achieving financial independence. With proper planning, you can get out of debt, earn enough income, and maintain your desired lifestyle without being too dependent on the kindness of others.
6. Achieving your life goals
The whole point of planning your finances is to get where you want to be in your lifetime.
Life goals—such as buying a home, pursuing graduate studies, getting married, starting a family, or retiring early—can cost a lot of money. Unless you’re born super-rich, realizing such goals will take long years’ worth of hard labor. More so if you’re stuck in debt.
With a well-thought-out financial plan, you have a clear direction on what you need to do to meet your goals. You have timelines for each financial milestone you’ve set to keep your eye on the prize.
7. Preparing for your financial future
While it’s good to live in the here and now, it’s even better if you start thinking about your financial future. Instead of constantly worrying about money, you take proactive steps to ensure you have enough money when you need it.
How can you get financial security for your family or when you retire? You’ll get definite answers through the strategies you develop during financial planning.
The Financial Planning Process: How to Make a Financial Plan
Here are six steps to take for an in-depth financial planning process.
1. Assess your current financial situation
There’s no one-size-fits-all financial plan that works for everyone, as each person’s situation is unique. Effective financial planning starts with having a thorough understanding of where you stand now financially.
How much do you own and owe? Where does your money go and come from every month? How much are you earning and spending? Do you have any savings? If so, are you saving enough?
Knowing the answers to such questions, you can set realistic and attainable goals based on your present financial standing. It also helps you decide on the changes you need to make, so you can improve your finances and meet your goals.
Here are the specific steps you should take to get an accurate picture of your financial state.
a. Collect all relevant financial documents
First off, get the information needed to accurately determine and objectively evaluate your financial status.
Gather any relevant and recent documents for the past three to six months. These may include your payslips, bank statements, billing statements (for utilities, credit cards, etc.), receipts, invoices, transaction records, and insurance policies. You’ll refer to them as you review your assets, liabilities, income, expenses, savings, and investments.
b. Compute your net worth
Companies review their assets and liabilities by making a balance sheet. Public officials are required to submit their Statement of Assets, Liabilities and Net Worth (better known as SALN).
Prepare something similar to those, so you can determine your current net worth. Simply put, your net worth consists of what you own and what you owe. It’s what’s left after you deduct your total liabilities from your total assets.
Assets include cash on hand, cash deposited in bank accounts, investments, properties (real estate, cars, jewelry, etc.), and other valuables.
Liabilities include loans, current bills, credit card debt, insurance premiums, and other things you need to pay for.
c. Examine your cash flow
In this step, you’re essentially tracking money that goes in and out, so you can create an effective budget during your actual financial planning. This entails creating your own monthly cash flow statement like what companies do.
When making your cash flow statement, list down and categorize your income sources (salary, business earnings, commissions, dividends, etc.), expenses (food, groceries, rent, utilities, entertainment, etc.), and savings.
d. Analyze and evaluate your financial data
After gathering and organizing the relevant data, the next step is to analyze it. Look for any trends, like anything you unnecessarily spend on, a debt with very high interest, or an investment with very low yield.
Using the information you’ve collected, you can determine how much additional income you need to earn per month, which expenses you should reduce or eliminate, and if you have to save more money.
2. Set your financial goals
When you have a clear picture of your financial situation, you can identify what exactly you want to accomplish.
Guiding you through financial planning, goal-setting provides clear direction on what you want to achieve and what you must work on. Your goals motivate you to complete the next steps of the financial planning process.
Here are the specific things you can do to define your financial goals.
a. Ask yourself open-ended questions
The questions could be about your dreams, needs, risk appetite, financial strengths and weaknesses, and other aspects of your personal finances.
Examples of open-ended questions for goal-setting:
- How do I imagine my life five, 10, and 20 years from now?
- When do I want to retire? What kind of lifestyle do I want for retirement?
- What financial aspects am I good at (e.g., saving, investing, budgeting, spending, etc.)? Which ones am I struggling with?
- How do I feel about investing my money? How much risk can I tolerate?
b. Think about what money can do for you
Using your present financial situation as your reference point, decide on whether you want to maintain it or change it for the better in the future. Then consider how money can help you achieve your ideal financial future. This perspective makes your financial planning process feel more deliberate and inspiring.
c. Create short-term and long-term goals
After contemplating on the considerations for your goals, you can now determine what you want to accomplish soon and in the long run.
Short-term goals—those you aim to meet within the year—will keep you motivated in staying on track with your financial plan and taking steps closer to your bigger dreams.
Examples of short-term goals:
- Build an emergency fund worth three to six months of income within X months
- Save enough capital worth Php XXX,XXX to open a small business next year
- Pay off credit card debt in the next X months
Long-term goals—those you’ll take a year or longer to achieve—help you stay focused on having your desired financial future.
Examples of long-term goals:
- Finish paying off mortgage in the next 10 years
- Get married in X years with a budget of Php XXX,XXX
- Build a college tuition fund worth Php X million
- Retire by the age of X and save 80% of income at retirement to live comfortably
Your financial goals don’t have to be similar to the given examples. Each of us has different goals because we’re at different stages in our lives. The goals of 20-something fresh graduates may be totally different from the goals of people in their mid-30s starting to build a family and in their mid-50s who are getting closer to the retirement age.
Whatever your goals are, make sure that they’re SMART (specific, measurable, achievable, relevant, and time-based).
3. Develop your financial planning strategies
This is the actual planning stage. At this point, you’ve already defined your financial standing and goals. You can now create a comprehensive plan for achieving your goals.
Focus on the following six critical areas you need to plan for.
a. Monthly budget
Review your cash flow statement and make plans on keeping your expenses lower than your income, so you can increase your savings.
b. Debt management plan
Debts impair your ability to save, invest, and meet your financial goals. Thus, your financial plan should include strategies for paying down and ultimately, eliminating all your debts.
Take these steps in planning on how you’ll pay off your debts.
- List down all your current debts (unpaid rent, credit card balances, car loan, housing loan, student loan, etc.) along with their current balances, interest rates, monthly payments, and repayment period.
- Identify the debts whose payoff you want to prioritize. Either you choose to pay off first the debts with the highest interest rates or those with the highest monthly amortizations.
- Research how to pay off your debts the soonest time possible. Your options could include increasing your monthly payments, negotiating the terms with lenders, debt consolidation, loan restructuring, and credit card amnesty.
- Evaluate your options and choose the ones you can realistically do and can help you get out of your debt by your target date.
c. Emergency fund
An emergency fund is what you save up for when something unexpected happens—like getting laid off from work, illness of a loved one, or having your house repaired after a typhoon.
Building an emergency fund is a crucial aspect of financial planning. It’s all the more important and urgent if you are a breadwinner, live paycheck to paycheck, and/or have an irregular income.
Planning for your emergency fund entails thinking of ways to increase your savings and make it consistent. Among the strategies to consider is to open a dedicated savings account with a high interest rate for your emergency fund.
Insurance protects your assets and loved ones financially in the event of death, disability, or serious illness. Plan for having enough coverage on different types of insurance, including life, health, home, auto, business, etc.
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e. Estate plan
Estate planning is not only for the rich—even the middle class should protect their assets and loved ones when they die and can no longer do it.
Plan for what will happen to your assets after you’re gone. Prepare your last will and testament, living will, power of attorney, and other necessary documents for passing on your assets to your beneficiaries. It’s never too early to do so.
f. Investment for retirement
Aside from building wealth, another important purpose of investing is to build a retirement fund for maintaining your desired lifestyle in your golden years.
Identify and evaluate the following considerations when planning for your investments and retirement.
- At what age you want to retire
- The type of lifestyle you want in your retirement years
- How much you’ll need to retire
- How much you need to save up each month for retirement
- How much risk you can accept when investing for retirement
- The best types of assets (bonds, mutual funds, stocks, real estate, etc.) to invest in for retirement
- Retirement Planning: 5 Ways to Build a Retirement Fund in the Philippines
- 15 Best Investments for Millennials in the Philippines [Under 100K]
- Best Wealth Management Firms in the Philippines
4. Put your financial plan in action
Now put your plan to work! You’ll later feel that executing your strategies is more challenging than planning them. It takes much self-discipline to put your plans into practice.
5. Track your progress regularly
The financial planning process doesn’t end with implementing your plan. You should continuously check how far along you are with your action plans and whether you’re on track to meet your financial goals. To do that, you have to benchmark your progress against the goals you’ve set.
Some questions you should ask yourself when monitoring your financial planning progress:
- Have my income, savings, and debts increased or decreased? Am I hitting my targets?
- How have my investments performed?
- Am I getting closer to meeting my goals?
- What challenges and setbacks have prevented me from achieving my goals sooner?
- What bad money habits have I been doing? What are the reasons?
- What should I do to ensure that I stick to my financial plan?
6. Review and update your plan
Check your financial plan at least once every three to six months for anything that needs to be revised. As your financial situation and goals change, you might find out that your strategies are no longer effective in achieving your goals. Or your goals are no longer realistic considering your new circumstances.
Reviewing and updating your financial plan is necessary when a major event happens that makes a big impact on your finances. Such events could be any of the following:
- Having a new job that led to a big change in income
- Getting married, having a baby, losing a partner, death of the breadwinner, medical emergency, or any major change in the family
- Unexpected debt
- Finishing your debt repayments
- Buying or selling a home
- Economic recession
- Rising inflation
Adjusting your financial plan may involve changing your income/spending/savings targets, timelines, insurance coverage, etc.
Financial Plan Templates and Examples
A financial plan template is a pre-formatted document used as a guide or reference for creating your own plan. It provides an example of what specific details must be included in the document.
Using a template also makes financial planning easier and faster. Rather than make a financial plan from scratch, you can just search for financial plan templates online, download one, and fill out the fields with necessary details.
Financial plan templates allow for customization, too. You can add, remove, or modify fields based on the available information.
With a template, you don’t have to start all over when you have to revise your financial plan. Either you edit your existing plan or begin with a fresh template and fill it out.
Need a template for financial planning? Here are some templates and examples to use for drafting your own plan or template.
One-Page Financial Plan Template
If you’re looking for a simple and compact template, then this one-page document fits the bill. It can be downloaded as a PDF or Excel file.
The top portion is where you put the summary of information about your financial standing. The second table at the bottom is where you input your goals and the corresponding action plan for accomplishing each goal.
Sample Personal Cash Flow Statement
Here’s an example of a personal cash flow statement that breaks down all assets and liabilities according to different categories.
Since this exact sample can’t be downloaded as a PDF or Excel file, simply copy and paste relevant items to your own spreadsheet, except for those not applicable in the Philippines such as IRAs and 401(k)s.
Personal Monthly Budget Template
This is a very detailed template for a monthly budget spreadsheet. Simply enter your income, savings, and expenses per category in the Excel file.
Charts showing a summary of your monthly budget will be automatically generated each time you add or change a detail.
Financial Plan Goals Worksheet Templates
Smartsheet’s template for making a financial goals worksheet allows you to write down your goals along with your target amount and date for achieving each goal.
It also provides space for identifying potential hurdles to achieving your goals, as well as steps you’ll take to accomplish your goals and overcome the obstacles you listed.
You may download this worksheet as an Excel, Word, or PDF file.
Source: Missouri State University
This worksheet from MSU is a more detailed template for your financial goal-setting. Goals are divided into short-term, intermediate, and long-term. It allows you to rank your financial goals according to priority and set the total and monthly cost, and the timeline for each goal.
Goal Strategies Worksheet Template
Using this financial plan template, you can plot three different strategies to meet each of your goals. Of course, you can add more strategies as you see fit.
7 Tips for Effective Financial Planning
The process of creating a financial plan can seem daunting and overwhelming for beginners. Not to mention that it’s challenging to put those plans into practice.
But not to worry—you can do it! Just keep these tips in mind when planning strategies for achieving your financial goals.
1. Seek financial advice from a professional
Although you can pretty much complete your financial planning by yourself, you’ll benefit a lot from working with a financial planner.
What this finance professional does is ask you questions about your finances and goals, provide recommendations and advice based on what you’ve discussed, and help you map out your plan.
Should you DIY or get the services of a planner? Consider hiring a professional if something has happened in your life (e.g., inheriting or winning a large sum of money, starting a family, selling a business, etc.) with a big impact on your personal finances.
2. Take it one step at a time
All that number-crunching and brainstorming for strategies can be mentally draining. Add to that the self-imposed pressure to achieve your goals.
When planning your finances, don’t bite more than you can chew. Take on things one by one—you aren’t expected to accomplish something big and revolutionary in a short time. It’s perfectly all right to take baby steps in improving your financial situation.
Just be patient—you’ve got this! Be serious about your financial planning but don’t forget to go easy on yourself.
3. Create a money vision board
Can’t find the inspiration to follow through on your financial goals? When you feel like giving up, consider making a vision board—a collage of pictures, illustrations, words, and anything that visualizes your goals—and displaying it in your room.
You can add this fun exercise to your financial planning process to stay motivated. It’s also a good idea to include visual elements as trackers for your own progress, like a tracker for hitting your savings target or paying off your debts.
4. Discuss your finances with your spouse or family
It’s hard to work on achieving your financial goals if your loved ones are not on board with your plans. Have a serious discussion about your finances with affected members of the family to manage their expectations and make sure you’re all on the same page. If someone disagrees with your plans, then at least that person is aware of what you’re doing to improve your finances.
5. Track all your expenses
“Where did all my money go?” If you often find yourself asking this question, it will be really hard for you to set a realistic budget.
Take a few minutes daily to check your transaction history. Ideally, you’re using a credit card or debit card more often than cash because it allows you to view all your transactions online.
Tracking your expenses regularly makes you aware of where your money is spent and conscious of your own spending. If you realize you’re spending too much on a particular category, you can take immediate steps to correct it.
6. Get a money buddy
It’s easier to manage your finances if you have someone you can count on to help you stay accountable and focused on reaching your goals. Your financial buddy should be responsible and disciplined in handling their own money, while trustworthy enough for you to be comfortable with sharing your financial plan.
7. Record and compile everything in a folder
Being organized and systematic helps in the financial planning process. Make sure all your steps are documented and compiled in a single folder, so you can quickly access your files when needed.
10 Best Financial Planning Tools to Get Your Finances in Shape
Let technology make financial planning easier and less stressful for you. We’ve rounded up 10 top-rated and free financial planning apps you can use in the Philippines.
App Store rating: 5.0 | Google Play Store rating: 4.9
Ultimate FinPlan is an educational tool for financial planning beginners who want to enrich their knowledge about personal finance. It features a wide range of financial calculators and informative content that help users assess their financial situation, set, goals, develop plans, and more.
Ultimate FinPlan App Features:
- Calculators related to goal setting and planning for investment, insurance, loan repayment, retirement, etc.
- Educational articles on financial planning (for young, middle-aged, and senior professionals), data gathering, goal planning, loan management, investment management, etc.
App Store rating: 4.8 | Google Play Store rating: 4.7
Money Manager is a financial planning, expense tracking, and personal asset management tool in one. It makes managing personal finances simple through its variety of features.
Money Manager App Features:
- Budget and expense management for viewing budget and expenses through well-organized charts
- Bookmark function for quick entry of frequent expenses
- Calendar for viewing monthly transactions in one place
- Automatic double-entry bookkeeping
- Automatic money transfer for managing assets like salary, insurance, etc.
- Credit/Debit card management
- Backup support for viewing backup files in Excel
App Store rating: 4.8 | Google Play Store rating: 4.7
Sporting a cute design and featuring daily reminders to track expenses, the Monny app makes financial planning both fun and motivating.
Monny App Features:
- Daily money tracker
- Comprehensive monthly financial reports and charts
- Unlimited income and expense entries
- Unlimited multiple account books
- Customizable accounts for managing personal, business, and travel expenses separately
- Daily notifications that remind the user to track expenses
- Fun challenges to reach financial freedom
- Backup support
App Store rating: 4.8 | Google Play Store rating: 4.7
Fudget is a budget and expense tracking app that offers a simple way to manage your finances. If you’re looking for a no-frills app that’s easy to use for daily short-term budgeting, then Fudget is perfect for you.
Fudget App Features:
- Simple and color-coded daily, weekly, or monthly income and expenditure lists
- One-tap adding or editing of an income or spending item
- Option to highlight recurring expenses by tapping stars
5. Household Account Book (Android)
Google Play Store rating: 4.7
Ideal for students and young adults, this quirky budget tracker app features a comic book character named Pisuke whose story moves along as you enter your income and expenses. It makes financial planning fun, enjoyable, and simple.
Household Account Book App Features:
- Easy-to-use income and expense tracker
- Expense report presented as a pie graph
- Ability to read a story that progresses as the app is used more often
- Downloadable wallpapers featuring cute illustrations
6. 1Money (Android)
Google Play Store rating: 4.7
Wondering where your money goes? The 1Money app makes tracking your finances easy for you.
1Money App Features:
- Ability to enter a new transaction with just one tap
- Income and expense overview presented in a graph and broken down into categories
- Debts and savings tracker
- Cloud-based data synchronization for managing finances across different devices
- Multi-currency support
7. Bluecoins (Android)
Google Play Store rating: 4.7
“Finance made easy and fun” is what Bluecoins promises to its app users, with its simple, minimalist design and seamless data syncing. This all-around budget and finance app works as a personal finance tool and household budget planner. It’s also designed for small business use.
Bluecoins App Features:
- Ability to monitor a wide range of accounts, including, bank accounts, credit cards, loans, and debts through graph reports
- Charts and reports that are easy to understand, generate, and export in Excel, PDF, or HTML
- Customizable budgeting categories viewable weekly, monthly, quarterly, and yearly
- Ability to access data on multiple devices and with family members
- Bill reminders
- Cash flow and net worth analysis
- Future finance/expense/income projections
- Multi-currency support (including cryptocurrencies)
App Store rating: 4.6 | Google Play Store rating: 4.6
The Wallet app is a personal finance manager for budgeting and tracking expenses on your own or with your family or friends. It lets you view all aspects of your finances in one place.
Wallet App Features:
- Colorful, user-friendly interface
- Integrated money manager
- Automated, insightful, and easy-to-understand graph and summary reports
- Bill tracker for organizing bills and tracking due dates
- Receipt and warranty tracker
- Automatic syncing of transactions of accounts from 4,000 banks worldwide
- Multi-currency support
App Store rating: 4.6 | Google Play Store rating: 4.5
Created for and by millennials, the Money Lover app is a digital wallet and budget planner in one. It’s loaded with different features for efficient personal finance management.
Money Lover App Features:
- Easy-to-use daily income and expense tracker
- Reports that show an overview of income and spending by date or category
- Budgeting tool for setting spending limits and getting an alert when the limit is about to be reached
- Spending forecast for predicting future spending
- Saving progress tracker
- Debt and loan repayment tracker
- Linked wallet for automatic syncing with over 150 banks worldwide
- Credit card wallet for managing credit cards and payments
- Ability to set up recurring bills or transactions
- Ability to take photos of receipts and store them
- Built-in currency converter
App Store rating: 4.6 | Google Play Store rating: 4.0
Spendee is a comprehensive household budget planner and manager that allows you to create shared wallets with family and friends. It can also be used for planning your finances for special events like travel or wedding planning
Spendee App Features:
- Automated syncing with bank accounts for quick adding and categorizing of income and expenses
- Manual adding of cash expenses for a more accurate expense tracking
- Option to add a category for special events
- Bill tracker for on-time bills payment
- Ability to manage finances with an unlimited number of people
- Multi-currency support