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Elements of Financial Planning

Who needs a financial plan anyway? You do! A carpenter doesn't build a house without a blueprint — can you build a secure future without a financial plan?

There are many elements of a financial plan that should be integrated into an overall strategy for your personal economic future. Many financial advisors agree that there are seven elements to a successful financial plan. Depending upon your current situation, you may not need to spend much time worrying about some of these basics; however, you should think about each of these planning categories and assure yourself that you are covered. While you may categorize them differently, collapse some into others or add new categories for your situation, the components of a successful financial plan are essentially the same and include:

  1. Budgeting

  2. Saving and Investing

  3. Insurance

  4. Debt

  5. Tax

  6. Estate

  7. Retirement

It's important to learn the fundamentals of each and make an informed decision on the impact planning or lack of planning will have on your financial situation.


Living paycheck to paycheck is often a difficult way of getting through the month. No matter what your income level is, you may wish to consider the merits of implementing a household budget. In general, a realistic budget will help you control where you are spending your hard-earned dollars and allow you to make informed decisions on how to control your spending habits. See our budget topics in the CareOne Credit Knowledge Library. Remember, a successful budget always includes a line item for savings so you can achieve both your short- and long-term goals and attain financial independence.

Saving and Investing

If you are not currently saving, you may never achieve financial independence. Many financial professionals agree that you should strive to save at least 10% of your gross income each month. Don't worry if you can't save 10% — saving just a small amount each month is a good idea. Creating a savings plan may help you reach your short-term goals, such as establishing an emergency fund or funding a special vacation. You may also have long-term savings goals, such as creating a college education fund for your children or buying a new house. Once you commit to creating savings, you must define an investment strategy that works for you. You'll want to assess your risk tolerance and then invest so you will have enough money to reach your goal when you are ready. Read more about saving and investing in our Knowledge Library.


Insurance is all about protecting yourself from risk. Insurance is intended to minimize your risk and liability in the event of loss related to your family and the things your family owns. Virtually all of your household belongings, as well as your salary and your health, can be insured. An insurance plan should take into account how much the lack of insurance might risk your personal situation. For example, it may not be necessary to pay for an insurance policy to protect your landscaped garden, unless it contains imported bonsai trees that cost thousands of dollars each! There are some policies you cannot go without, such as certain minimum auto insurance requirements, and then there are some policies you'll have to weigh very carefully, such as life insurance, to make sure you have the right amount of coverage. Learn more about life and property insurance in our other articles. As a general rule, you'll want to analyze your financial situation and your belongings, and obtain the most coverage possible for the least amount of premium possible.


Your plan for debt should be to get out of it! For many households, not all debt is bad. In fact, some types of debts, for example mortgage debt, can be a good thing. It means you have crossed a major milestone and are on your way to owning a home. Being in debt may also mean you have a reliable car to get you to and from work or perhaps you've sent your child off to college for a good education. However, if you're using credit to pay for routine expenses like food, entertainment or gas, you may be headed for a debt crisis. If debt is excessive and interfering with the other elements of your financial plan, consumer debt consolidation may be right for you. Don't worry, because if you develop a comprehensive financial plan that includes a budgeting strategy, some of your debt dilemma may take care of itself.


Didn't someone say that the only sure things in life are death and taxes? Did you know you can create a tax plan that can help you minimize your tax liability? Make sure you have the knowledge on how to cut your taxes and what steps you can take to shelter your income from taxes. Many of your financial planning strategies come with tax implications. Read up on income tax tips here. While you cannot eliminate taxes from your life, you can make informed financial decisions so you only pay the taxes you have to pay and no more.


Like it or not, you are going to pass on from this life sooner or later. Do you want to leave the distribution and taxation of your assets to fate? No matter how much your assets are worth, most people will want to have a say in who gets what and when. See estate planning articles here. There are several steps you may want to take to ensure your heirs get what they are entitled to, and that Uncle Sam's portion is minimized.


Make sure your golden years are happy years. You'll want to be able to enjoy your later years in life so make sure you plan up front. You have many options available to help you prepare for your retirement. You may probably earn millions of dollars during your working years; make sure you have evaluated what your situation will look like when you are ready to retire and take steps to ensure you are well prepared for your golden years. See more about retirement planning in our other articles.

Pulling It All Together

The underlying theme to creating a complete financial plan is to set goals. You can define a set of goals that relate or interrelate to each of the seven planning categories identified. Or you may just want to focus on certain aspects of financial planning, depending upon your current age and financial situation. However you decide to approach financial planning, make sure you set precise, realistic, and achievable goals. You can control your financial destiny if you decide that it's important enough. For more information on developing a financial plan, see the Federal Citizen Information Center guide Building Financial Freedom. If you want to learn more about financial planners, the Certified Financial Planner Board of Standards, Inc., offers a free Financial Planning Resource Kit.

Take control of your finances with our debt help tools. Use our calculators and budget planner to help you manage your money.

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