What’s a financial plan, and why do you need one?

Jan 13, 2021

Less than 20% of Australian’s have a financial plan, yet it is reported that 63% of people with a written financial plan say they feel financially stable, compared to only 28% of those without a plan.

Put simply, a financial plan is an overview of your goals and the steps you need to take to achieve them.

In this blog we are going to cover:

  1. What is a financial plan?
  2. Who needs a financial plan?
  3. How you can get started with your financial plan

You have probably heard the term “financial plan” and imagine a successful, wealthy person meeting someone in a suit and tie in a plush office, and spending thousands of dollars discussing the benefits of a diversified portfolio, and a bunch of other financial talk that you simply decide is beyond you.

Or maybe you think financial plans are only for those who have, well, finances. I’m happy to tell you, that in both cases you are wrong. Every adult needs a financial plan, no matter how much money you have (or don’t have) and how old you are. In fact, I believe every child should be taught the importance of a financial plan from a young age, but unfortunately, this is something that we aren’t taught in schools, and are left to the trial and error of real-life to learn.

I get it – a financial plan can seem overwhelming. The finance industry is riddled with jargon, complicated language, and is easily confusing. It’s no wonder that the perception is a financial plan is needed only for the wealthy and sophisticated.  So, in this blog we are going to do our best to take the intimidatingly complicated and make it simple. So simple that we give you the opportunity to familiarise your kids with a financial plan. You should not need to be a financial guru, or a genius to have a financial plan, but you should certainly have one.


Stop buying your kids the things you never had,

And start teaching them things you never knew

What is a financial plan?

 A financial plan is simply a map to reach your goals. Please make a note that I didn’t say “financial goals”. Everyone wants to make and have more money, but money is not the goal.

If you think like that, then you are in for a tough life. The real reason you, or anyone needs a financial plan is to reach your life goals; money is just the vehicle or the tool to help you achieve those life goals.

Everyone is unique, so it makes perfect sense that everyone’s life goals should also be unique. An example of life goals can look something like this:

  • Owning a certain car
  • Learning a new skill
  • Traveling somewhere new
  • Buying a house
  • Getting married
  • Having kids
  • Funding your kids’ education
  • Retiring early.

These are examples of life goals, and I’m sure you have your own. A financial plan is a tool that will assist you to reach your life goals.

A financial plan identifies where you are today, and where you want to be tomorrow, or at some point in the future (5, 10, 20 years, it doesn’t matter). The financial plan is simply a map that connects these two.

Where are you today?

This is your snapshot of your current financial situation. It’s basically made up of two documents:

  1. A record of your current net worth; and
  2. Your spending plan.

If you don’t have these already, don’t stress you can easily create them, keep reading, and we will show you how.

What is my net worth?

 Make a list of everything you own that has a dollar value, or resale value and how much they are currently worth. These things are referred to as assets. The list will be different for everyone, but will look something like this:

  • Cash
  • Savings and investments
  • The current value of your car or any other vehicles
  • House and any other property you own

Once you have done this, then it’s time to make a list of everything you owe in life and how much you owe. These are referred to as your debts. These will be different for everyone, but will look something like this:

  • Credit card or store card debt
  • Personal loan
  • Car loan
  • Student loan
  • Mortgage
  • Any payment plans you have

Now you have a list of all your assets, and your debts (also called liabilities), if you subtract the total value of your debts (what you owe) from the total value of your assets (what you own), you have your net worth.

What is my spending plan?

 We have covered this in previous blogs, you can learn more here Click to view .

The Fix Bad Credit team have developed a free spending plan template you can use to help you get started. Get in touch if you would like a copy or want some help.

Your spending plan is a record of how much money you earn, how you spend that money, and what you do with any remaining (such as save or invest).

The goal is to gain a realistic idea of what you spend, where you spend it, and what you have left at the end of the month. This allows you to identify areas to save and where you may overspend.

Now that you have your net worth, and your spending plan – you have an understanding of where you are currently at.

Where do you want to be?

  • Where do you want to be in one year?
  • What about five years?
  • or 20 years?

Create your own life goals list, and put a timeframe to these goals.

Don’t worry about whether it seems financial or not; remember that money is a tool or vehicle to reach your goals.

Now separate them into:

  • What you want in the next year (short-term)
  • What you want in the next 5 years (medium-term)
  • What you want in 5+ years (long-term).

Now you have your list, you need to prioritise them by importance.

How do you get there?

This is what we call the financial plan.

How you use money to help you to reach these goals?

For some goals, this is rather straight forward, and simple.

For example, say the goal you are working on right now is that you want to buy a new car by December 2021.

Then you simply estimate the cost(s) involved, divide it by the number of months and create a monthly savings plan.

However, most of us have multiple goals. We want to travel, get out of debt, save for our child’s education, buy a home, protect our family, retire someday and more.

A financial plan takes into account all of your life goals. It is a detailed map based on your prioritised life goals, and should show you exactly how much you need to save, and for how long and what you can afford to spend.

There are numerous different types of financial investments that can assist you reach your life goals, and should be covered in your financial plan.

We strongly recommend you do your homework, and due diligence on what tools to use in your financial plan to achieve your life goals. There are many things to consider. If you aren’t aware of the most important investment decision, we will be addressing this in an upcoming blog

Your personal tolerance to risk is very important also, so keep an eye out for an upcoming blog that will cover this matter.

Once you are comfortable your understanding of what a financial plan is, then there is no reason why you cannot create your own. This is certainly a good place to start.

Or you can work with a financial planner who can create one for you. Since financial plans can include complex subjects such as life insurance and wills, a financial planner may be necessary to help you get a good understanding, and navigate these matters for you.

We have arranged a special deal for our Fix Bad Credit family, with our financial planner who will happily provide their professional services to help people who only want a one-time financial plan, or an ongoing service.

Hopefully this blog has helped you overcome the mindset that a financial plan is not just some sophisticated statement with pie charts and annoying financial buzz words, that is for other people.

Whether you are a single 20 something who has a life goal of buying a house, or start a business, or even address their student debt, or you are a married 50 something who wants to be sure you’re on track to retire securely, a financial plan simply provides the map to get you there.

What are some of your life goals? Are you planning to get a financial plan?

Note: The information in this article is general in nature as it has been prepared without taking account of your objectives, financial situation or needs.

B M Peachey

B M Peachey, has over 15 years of experience investing in property and the stock market, in both New Zealand and Australia. She has a post-graduate degree, with qualifications in Finance and Mortgage Broking and in Accounting and Bookkeeping. She is passionate about ensuring people have access to credible, reliable, and easy to understand information to help them get in control of the life they REALLY want to live.<

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    Disclaimer: The information in this article is general in nature as it has been prepared without taking account of your specific objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.