How to Build A Financial Plan without a Professional Financial Planner

Years ago, I dropped my business card into one of those fishbowls near the front door of a restaurant. You’ve seen them too – put your card in a fishbowl to win a free dinner for you and eight of your friends!

I just graduated college, was working for the first time, and I had a box of a thousand business cards.

It was worth it to drop one in the bowl, right?

The meal might have been free but it still cost me. It cost me over an hour talking with a “financial planner” who was more salesperson than planner.

I realized I spent an hour parrying offers of life insurance and overpriced mutual funds. Even back then I knew that paying 1%+ in (fees plus a sales load/commission!) was a bad idea.

After the hour, I thanked the young man for lunch, the pitch, and the reminder that there’s no such thing as a free lunch. πŸ™‚

He did give me one gift though – the awareness that I didn’t have a financial plan. I wasn’t married and I didn’t have kids, so not having a plan wasn’t a big deal. Fast forward a few years, marriage, and two kids; a financial plan is crucial.

But you don’t need a “financial planner” to develop your financial plan. You have all the tools already. You only need to learn how to fit it all together.

I’ll show you today.

Caveat: I am not a financial planner. I explain what I did to develop a plan. Much later on, we began working with a fee-only financial planner and now this process has been enriched by my experience working with one. Lastly, a plan only helps if you execute it. πŸ™‚

Table of Contents
  1. What is a Financial Plan?
  2. Map Your Current Financial State
  3. Plan Your Future Financial State(s)
  4. Financial Plan for Current to Future
  5. Get an Expert Opinion
  6. Review Your Plan Annually

What is a Financial Plan?

A financial plan does three things:

  • It captures your current state,
  • It captures your future goal state,
  • It builds a strategy to get you to be in the future.

When I met the faux-financial planner, I was dating my long-term girlfriend/future wife, had no kids, and was renting an apartment with a friend.

Within five years, I planned to marry my girlfriend. Within ten I hoped we would have a few kids. I would like to own a house too.

How the future turned out might not match my plans, but you have to put something down on paper! We had a general idea of where we were going.

Now, we unpack each of the three steps – map out your current state, plan your future state, and build a plan to get you there.

Map Your Current Financial State

If you’ve read my article on how I keep track of my net worth, then you’ll have a good idea of what “map your current financial state” means. It’s a listing of assets and liabilities.

Each month, I update the numbers so I have a monthly snapshot I can use whenever I need it. For me, it’s also my monthly check-in on our finances so nothing slips by for more than a few weeks.

Net worth is just the core of your “financial” state because it’s like a snapshot in time. You need to layer on your cash flow, which is from your work and investments, as well as your expenses.

Net worth is a bucket that you’re filling with your work and emptying for your expenses.

You should have a good sense of income, especially if you’re working a typical W-2 job. It gets a little trickier if you’re running a business or some side hustles.

Lastly, you also need to understand your expenses and for that we use tools like Mint, You Need a Budget or Personal Capital.

When you have a handle on your income and your expenses, you know how your net worth changes each month due to your intervention. This can educate you on how much of your paycheck you should save and other key decisions.

Plan Your Future Financial State(s)

This is the hardest piece of the process because people are notoriously bad at predicting the future..

One of the benefits of working with a financial planner is that you talk things out with someone else. It’s like a psychologist for your money. Many breakthroughs happen when you talk out loud about a subject and doing this on your own will only make you seem crazy.

If you’re doing this on your own, you can still find success. You can try to plan out these future states yourself and then talk to someone you trust. It needs to be someone you can be frank and open with, like your partner or a family member.

Let’s dive into the planning of future states — first, don’t think of it as a single future state but a series of future states. I think of our future in 5 and 10-year blocks. There are certain things I want to accomplish when I’m 35-40, things I want to accomplish when I’m 40-45, etc.

One of my future states was to buy a house when I was 25-30. There is an enormous difference between 25 and 30, but by putting the goal within that block I give myself flexibility. It gives my plan flexibility. As the age span gets closer, my target range gets smaller. When I was 25, I had a good idea of whether my plan of buying a house in that range is feasible. I also had a good idea that I’d buy a house at 27, or somewhere near there.

Think of the things you’d like to accomplish, put a time range on them, and then the future funding need of those goals and those blocks. It’s all about the Benjamins, after all. πŸ™‚

Let’s take the house example again. I’m 22, I set the goal of buying a house when I’m 25-30, how much of a down payment will I need before I buy? $10,000? $30,000? I look at the houses I’d like to live in, calculate how much I’d need as a down payment, and put it down on my list of goals.

Now do this for all of your goals… including the biggest and hairiest: retirement.

For retirement, I like to keep it simple because it’s something so far into the future (40+ years). I figure there will be plenty of times down the road to make course corrections. For now, I use the 4% withdrawal rule, estimate my future funding needs, and put that as my nest egg goal.

For every $40,000 a year I need to spend, I need to save $1,000,000. If I need $120,000 a year, then I’ll need to amass $3 million.

Depending on how precise you like to be, you can adjust it for any pension or Social Security you’ll collect. For example, I played with the Social Security Quick Calculator and it guessed I’d looking at around $2,645 in monthly benefits. That’s $31,740 a year I won’t need to pull from retirement savings and lowers my nest egg needs.

Financial Plan for Current to Future

You can take off your Predicting the Future hat and pull out your calculator. It’s math time.

Going back to the house example – how much of a down payment do I need? Let’s say it’s $25,000 — how quickly can I save $25,000? That will give me an idea of how feasible that goal is. In doing the math, I may realize that I can’t save $25,000 in 3 years. My block for the house remains 25-30 but the center of the bulls-eye might be 28 or 29.

With a goal of less than 5 years, I don’t want to put those savings into the volatile stock market. I would stick it in a savings fund, perhaps some CDs, but with those earning a pittance in interest it’s not even worth the time to calculate the growth of principal. To save $25,000 in five years, that’s ~$416 a month. Doable or not? Look in your budget.

Let’s take something a little bigger — retirement.

If I had a retirement goal is $1,265,000 in 45 years, how doable is that? For this, you’ll want to use a calculator that can take a few assumptions and give you a number. There are a few retirement calculators on this page you can play with. Also, NewRetirement is excellent for building a retirement plan.

I kept the same starting assumptions (8% investment returns, 3% inflation, retire at 65 and 20 years of retirement income). It told me I’d need $822 a month towards retirement to end up at $1.5 million in my nest egg.

This means that if I want to retire in 45 years and buy a house in 5 years, I’ll need to save $1,238 a month. Add more goals and the savings need goes up even more.

Whether or not it’s doable depends on your budget. If it is not possible, you need to adjust things (earn more, spend less, or push out the timeline of your goals).

If you are willing to wait a year on the house, you need to save $25,000 over six years — $347 a month. Your monthly saving needs fall to $1169.

You will be pushed to make a few decisions about your future but now you’ll do it armed with a plan and the numbers to back them up.

Get an Expert Opinion

Once you’ve set up your plan, it may be worth considering meeting with a financial advisor to see how your plan stacks up with what a professional might create. There are plenty of advisors who are happy to meet and discuss your situation to see if it is working for you.

Here’s how to find a financial advisor (always fee only!) or you can head over to WiserAdvisor to start your search. WiserAdvisor is a directory of vetted financial advisors, you can learn more about them in our WiseAdvisor review.

If all of this seems like too much, you can work with a planner to create the whole thing with your inputs.

Review Your Plan Annually

You’ve created your Financial Plan – whew! Good job!

Now you need to remember to review it annually. You will want to review your progress, see if you’re still on track (or behind or ahead), and then adjust it as necessary to fit the realities of life.

For things you wish to do in the next 5-10 years, you won’t want to make any changes based on the progress of just one year. If it’s something completely in your control, like your plan was to save $500 a month and found yourself saving $600 – great! You can adjust your plan since all the inputs are within your control.

If you have something that’s far into the future, like retirement, and it depends on things outside of your control, such as the return of the stock market, you don’t need to adjust your plan every year. For example, you assumed the market would return 8% each year but it actually returned 15%. Wonderful! Leave everything alone.

If you are ahead, great. If you are behind, don’t panic until a few years have passed and you look back at the annualized return over the last 5-10 years. That’s when you’ll want to make an adjustment. It’s like landing a plane or turning a cruise ship, two things I’ve never done but I can imagine it requires a steady hand and no sudden movements. πŸ™‚

There will sometimes be surprises, both positive (larger bonus! above average returns! huge raise!) and negative (water heater exploded! medical emergency!), the key is to use the plan to help you manage them.

Having a plan is very important because it forces you to think about the future, put numbers to it, and helps you make informed decisions rather than an emotional one. Without a plan, you’re going with your gut and that’s not exactly a recipe for success.

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About Jim Wang

Jim Wang is a forty-something father of four who is a frequent contributor to Forbes and Vanguard's Blog. He has also been fortunate to have appeared in the New York Times, Baltimore Sun, Entrepreneur, and Marketplace Money.

Jim has a B.S. in Computer Science and Economics from Carnegie Mellon University, an M.S. in Information Technology - Software Engineering from Carnegie Mellon University, as well as a Masters in Business Administration from Johns Hopkins University. His approach to personal finance is that of an engineer, breaking down complex subjects into bite-sized easily understood concepts that you can use in your daily life.

One of his favorite tools (here's my treasure chest of tools,, everything I use) is Personal Capital, which enables him to manage his finances in just 15-minutes each month. They also offer financial planning, such as a Retirement Planning Tool that can tell you if you're on track to retire when you want. It's free.

He is also diversifying his investment portfolio by adding a little bit of real estate. But not rental homes, because he doesn't want a second job, it's diversified small investments in a few commercial properties and farms in Illinois, Louisiana, and California through AcreTrader.

Recently, he's invested in a few pieces of art on Masterworks too.

>> Read more articles by Jim

Opinions expressed here are the author's alone, not those of any bank or financial institution. This content has not been reviewed, approved or otherwise endorsed by any of these entities.

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About the comments on this site:

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    • Jim Wang says

      The process is more important because it forces you to think about some of those hard problems – and the regular updates makes you think about how your plans need to change as things happen according and (mostly) not according to it. πŸ™‚

  1. Alex Louie says

    Very good post indeed.

    I especially enjoyed your heuristic ( rule of thumb ): 4% means $1M for every $40,000 of retirement income.

    Rather than calculate the exact nest egg I would want / need in retirement.
    I can use this to gauge how much to save / invest in 5 year increments.

    Simple and effective.
    Thank you, thank you, thank you for your insights Jim.

    • Jim Wang says

      I appreciate the compliments and glad the post resonated – I like simple heuristics when thinking about “big things” like this one. It turns something big and nebulous into something smaller and actionable.

  2. Kat says

    I have honestly never managed to save it pay down debt if the plan took longer than one year, which is sad because I am in my mid thirties. I have retirement savings because when I am with an employer that offers a 401k I contribute as much as I can, and I generally max out my Roth IRA, but it’s much lower than it should be for my age. I guess I just don’t really have much hope for the future and I don’t want a house and all the challenges that go with that, so I have never pulled the trigger on buying a home. There one virtue is that I have a high income and lower expenses (not owning a home helps.)

    • Jim Wang says

      You have to do what works for you, not what society deems is “best.” You don’t need to own a home, but you do need to pay down debt and stop carrying it around. It’s a weight that’ll depress everything because you’re paying interest and borrowing from your future self.

  3. Gordon Steen says

    5-6% return on investments, 2.5% inflation, 4% medical, LT care $50-$100k – 4%. Hope for the best, plan for the worst.

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