Only 41 percent of American households follow a budget. If you are on the wrong side of that equation, don’t fret; it’s never too late to incorporate a budget into your personal financial plan.

A personal financial plan can be a key part of helping you and your family achieve your vision for the future, be there for your community, and have the experiences in your retirement that you dream of. Whether you don’t know where to start or you want to see if your current plan has you covered, here are five core elements that your personal financial plan needs.

1. Define your goals.

The first key step in your personal financial plan journey is to identify where you want it to take you.

Whether you make a formal document with your family and trusted friends or use the back of an envelope, it is important to create a vision for your future and how you would like to experience the real moments that matter.

However method you choose, it is important to document the following types of goals:

  • Short-term goals: Those you hope to achieve in the next five years—such as paying off debt, planning for a vacation, or buying a new car
  • Medium-term goals: Those you hope to achieve in the next five to 10 years—such as making the down payment on a home, planning a special life event, or starting your own business
  • Long-term goals: Those that are 10 or more years away—including college planning and, of course, retirement

2. Know your current trajectory and net worth.

Next, it is important to understand where you are. Take the time to completely—and honestly—capture your assets, liabilities, income, and known upcoming expenses. This information should include:

Use this information to create a baseline of your current net worth and map out a potential (realistic) trajectory of where continuing on this path could take you. You will likely have a good idea of your next few key steps after completing this task.

Free Guide: Creating a Personal Financial Plan to Help You Reach Your Money and  Life Goals >>

3. Set your emergency fund target.

You may have dreams of savings for your retirement or paying for your kids’ tuition, but you need to first focus on the present. An emergency that you are not financially prepared for can throw off your financial planning and progress in a heartbeat.

Make a short-term goal to save enough liquid money to cover at least 3-6 months’ worth of expenses. Establishing an emergency fund will help prevent your family from tapping into your retirement accounts and incurring separate tax liabilities.

4. Create your budget.

One way to create a budget is to track your spending and income for several weeks and then combine those figures with unique, one-time expenses and income such as taxes, bonuses, school costs, and insurance.

You should now have a comprehensive idea of your expenses and income. Mark which things are “needs” versus “wants” and prioritize them accordingly. Also make space for your financial goals, such as monthly debt payments and retirement savings.

5. Monitor your progress

As you probably already know, personal financial planning is an ever-changing process. Over time, your goals change, your financial situation evolves, and your vision grows.

So find a method to monitor your progress that fits into your lifestyle and that will assist you in regularly tracking your spending and income. Fortunately, there are plenty of online and mobile phone apps that can integrate with your accounts to ease the process.

Get the ball rolling.

We understand that it can seem overwhelming to create and stick to a personal financial plan, but trust us, the benefits are well worth it.

If you are looking to get your finances in order or if you are on the hunt for ways to take your planning to the next level, we would love to hear from you. Until then, we welcome you to use our resource, Creating a Personal Financial Plan to Help You Reach Your Money and Life Goals.

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