Creating a Financial Plan for Free

by Neal Frankle, CFP ®

You will have a far better life if you have a financial plan, stick to it and revisit that plan every couple of years.  You will feel more in control and you’ll achieve your goals far easier and much sooner.    I have no doubt about that. And based on the last 30 years of my professional experience, I can guarantee that this is true.

But that doesn’t mean you have to pay anyone to run this for you.  You can create the most important elements of your financial projections yourself.  While this is not a comprehensive approach, it gives you the basics of where you stand now and what you need to do now to improve your situation immediately and in the future.

I’m going to show you how to do this right now. Also, I’m going to provide a few spreadsheets that you can download and use yourself.  It’s not complicated and it doesn’t even take that long.

Before you get started you need some data:

1. Spending/Earnings/Savings. What does it cost you to live, on average, every month? How much do you earn? How much do you save? How will that change over time?  You don’t have to be 100% certain of these numbers but you do need a reasonable approximation.

2. Inflation. Over the last several years, inflation has been tame.  But over the last 20 years, prices have risen, on average, a little over 3% each year. What inflation figure do you want to use?

3. Assets and Liabilities. Before running a financial plan, you must have a balance sheet that lists all your assets and all your liabilities.

4. Estimated Rate of Return. Depending on how you invest your money, you need to make some assumptions about the returns you’re going to enjoy. The only way to estimate returns is to do so over a long period of time.

Nobody knows what the stock market is going to do this year or next. But you can make some assumptions about the returns over the next 20 years. (Of course, even that is tricky. While the long-term average returns of the market are about 9% per year, there can be long stretches of over or under performance.)

5. Tax bracket. What bracket are you in now? What tax rate will you be paying in the future?

Do you have questions about putting your plan together?  connect with me..  Maybe I can answer you directly or write a post to answer you in detail. 

As you can see, creating a financial plan requires lots of assumptions. Make the most reasonable assumptions possible, of course.  But even then they can turn out to be wildly off-base. That is the reason I like to run plans that are easy to update as your situation changes.   It’s also the reason I like to update plans every year.

Let’s take a very simple example.  Assume:

  • You spend $4,000 a month (before taxes).  That’s $48,000 a year.  We will have to adjust that up for inflation.
  • You save $500 a month ($6,000 a year), which goes into your 401k.
  • You are in the 35% marginal tax bracket.
  • 3% inflation rate
  • You want to retire in 20 years.
  • You estimate that your return on investment is going to be 6% on average.
  • You have $100,000 saved up in your retirement accounts presently.

The first step is to estimate how much money you are  going to accumulate.

Consider your $100,000 retirement account.  You assume that it will grow at 6% for 20 years and you will add $6000 a year to the account.   Here’s what it will be worth at that time:


future value


Now, let’s consider how much income that $551,427 will generate 20 years from now.  Assume that you withdraw 4% of the account value per year once you retire.


retirement 2


That’s how much money your investments will generate in 20 years if all our assumptions are true.  Now let’s consider what you’ll need after inflation.

You spend $48,000 now.  If we assume you will spend that same amount but adjust for  3% inflation, what will you be spending 20 years from now?

retirement 3

Tying it all together.

For this example, you’ll spend close to $87,000 but only have about $22,500 a year coming in.  Before you hit the panic button, let’s consider other sources of income like Social Security, rent and pension income.

reitremetn t

In this case, you have Social Security, pension, real estate and other income which will probably be over $95,000 by the time you retire.  That plus the $22,500 provides more than enough income to pay your projected retirement expenses 20 years from now.  Now you have a plan you can work with!  And it wasn’t all that tough to do. Right?

Now,  all you have to do is:

  1. Make sure you save the $500 a month no matter what.
  2. Keep that real estate working for you.
  3. Avoid doing something dumb.
  4. Make sure your expenses don’t climb about your projections (plus inflation).

This is the entire purpose of the exercise – to determine exactly what you need to do or change right now and to be laser clear on what is most important.

If your plan doesn’t work, you still have a few choices:

a. Save more and spend less.

b. Work longer.

c. Get a part-time job once you retire.

d. Invest more aggressively (Although I don’t like the idea of getting over aggressive. I suggest you work towards a combination of a, b and c instead assuming you already do have growth in your portoflio).

From this example you can see that creating your own financial plan isn’t all that difficult. Once you have a clear picture of what questions to ask yourself, the rest is straightforward. Go through the exercise and download this retirement calculator spreadsheet.  Make your own rough projections and update them yearly.

Have you created your own financial plan? What changes did you make as a result?



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