I know that financial planning can feel overwhelming, especially if you’re just getting started.
There are just so many aspects to it that we don’t know where to start. And of course, it isn’t as easy as just putting one foot in front of the other. Because where the hell do you put that first foot?
Where do you actually begin? What tools do you actually need?
That’s what this article is for: I cover the only 5 financial planning tools that I think you need when working toward financial freedom. I also chuck in a free Financial Planning Starter Kit to help get you going if you want it. Because, quite frankly, the right tools and the right checklist are all you need to get started and to feel more confident with your finances.
Let’s dive in.
Why Financial Planning is Non-Negotiable
Financial planning doesn’t just help you get a handle on your finances: it tells you exactly what you need to do to reach financial freedom, survive retirement and thrive in the life that you want, not one you have to settle for.
Financial planning involves tracking your expenses, which will tell you exactly how much you spend and, thus, how much you save. When you know how much you save, you can figure out how much you can invest risk-free. When you know what you can invest, you know what kind of future you can afford.
Of course, this income -> savings -> investing -> financial freedom math rarely aligns neatly. But it will also never align by chance.
However, the more financial planning tools you have in your arsenal, the better equipped you will be and with them, your financial plan will slowly fall into place. You can get started right now with your own Financial Planner Starter Kit.
Breaking Down the 5 Financial Planning Tools You Need
Alright, so how do you actually get started? You need the right tools. And, you have to think of these financial planning tools as the building blocks to your financial success. Without them, you can try to get somewhere, but you will eventually fail.
Like building a house without a blueprint; running a marathon without shoes; or, a braai without meat.
1. Cashflow Software
Budgeting gets a bad rap because it’s boring, it’s a chore, takes time and conjures up images of limiting yourself, when, in fact, all it does is tell you how you can improve your spending. So I’m going to refer to budgeting as managing your cash flow.
You’re going to need some sort of cash flow tracking software. This can be any type of money management app where you list your income and expenses, or something as simple as Google Sheets.
Just make sure it’s something that can give you a visual representation of your outgoings because in today’s day and age, with cashless this and bank transfer that, we won’t truly know where our money is going unless we keep track of it.
You don’t need anything fancy to get started. Here are some of my favourites:
- YNAB: for anyone living in a country where this is available
- Monefy: for my fellow expats who live and breathe in several currencies
- Any Google Sheet Budget Template: for literally anyone
2. Retirement Planning Calculators
OK, “retirement” is also a boring term so just think of this as your Financial Freedom Calculator.
There are heaps of retirement/investment calculators out there. The simplest for Brits is likely MoneyHelper’s Pension Calculator. But just Google it and have a play around. You’ll find one that suits you.
Financial freedom cum retirement calculators are financial planning tools that take into consideration all of your current savings and investments, while including your future savings and investments. Altogether, they calculate if you’ll have enough to retire and how long you can live once you stop working.
I love these calculators because they really kick urgency into you. If you don’t like what you see, it’s time to take your finances seriously, make adjustments and live sensibly now so that you can live forever, later.
3. Goal-Setting Worksheets
You need SMART goals. These are financial targets that are specific, measurable, attainable, relevant and time-sensitive. I’m sure you’ve heard the saying:
“Goals without a plan are just dreams.”
It’s true. If you don’t know what you’re saving for, how long you need to save or the outcome of not saving, then you won’t save!
Similarly, if you don’t know how much you need in the future to survive retirement, you won’t know how much you have to invest right now, which also means you’ll spend that extra money on booze rather than securing your financial future.
The brilliant thing about a goal-setting worksheet is that it helps you break your financial dreams down into smaller, manageable and actionable steps.
Want to buy a house worth $500,000 in 8 years, with a 15% down payment? Cool. That means you have to save at least $781.25 every month starting today.
Want an investment portfolio valued at $500,000 in 15 years? With an 8% average rate of return, that means you need to invest $1,450 every month from now on.
Once you have these goals, you automatically start figuring out your current financial situation to make them work. For example, if you’re only able to save $1,000 a month with your current outgoings, you might revisit your spending priorities to free up an additional $700/month to put toward long-term goals.
Goal-Setting Tools? Google Sheets, mate. Or anything that helps you keep track of where you are, and the progress you’re making. There’s a very simplified one in the Financial Planning Starter Kit to help you get started!
4. Debt Tackling Tools
Debt is one of those things that really stuffs people when it comes to their financial security and future. But there are nuances with everything.
To start: there’s good debt and there’s bad debt. Good debt is something that will help you buy an appreciating asset (something that goes up in value, like mortgage on a house) whereas bad debt is something that will cost you over the long-run (credit cards, car loans etc).
Bad debt will always put you in a worse financial situation in the future than you are in today. And it’s hard for us to work toward the future with it in our back pocket.
Outstanding credit card bills that rack up interest at a 20% rate, will kill any money that we plan to make from an average 10% investment return.
So, debt management financial tools.
You want to find something like a debt snowball calculator or debt avalanche calculator where you upload all your debts and it kicks back a repayment plan.
The snowball method is my favourite as it focuses on human psychology: pick and get rid of the easy, low-hanging fruit first, before you graduate onto the tougher stuff.
The avalanche method focuses on the best financial results: get rid of the debt with the highest interest rates first, to save some money over the long-term.
I’ve seen people succeed with both methods. It all comes down to what motivates you. Do you prefer the psychological boost of small wins (snowball), or are you more driven by saving on interest (avalanche)? Either way, having a plan is key.
5. Investment Calculator
Last, but not least, you need to determine how much you need to invest now to get you where you need to be later. For this, you need an investment calculator.
Investment calculators are financial planning tools designed to show you the potential future value of your investments based on variables like initial investment, additional contributions, time horizon, and expected rate of return. They help you understand how much you need to invest regularly to hit your financial goals.My top pick for an investment calculator is SmartAsset’s.
Remember, there is always a risk when it comes to investing. You should never invest any money that:
- You will need in the next 5 years
- Which will be used as a downpayment for a house
- Is your emergency fund
Investing is a +10 year game and should always be treated as such. Also, investing isn’t a one-size-fits-all thing. It depends on your goals, time horizon, and risk tolerance. That’s why I recommend making an investment plan tailored to your life (which is included in the Financial Planning Starter Kit).
The Financial Planning Starter Kit: What’s Inside and Why You Need It
This is for you, dear reader. Above I’ve broken down the financial planning tools I think you need to get started. But I’ve also made a free Financial Planning Starter Kit you can use to get up and running!
It’s not just fluff—I’ve filled it with some practical tools to help you review your current financial situation and financial planning tools to help you analyse future financial needs. The best part? It is completely free.
Here’s what’s inside:
- Current Financial Situation Checklist: Helps users assess where they stand financially.
- Monthly Cashflow Guesstimator: Aids in understanding income versus expenses, which is crucial for budgeting.
- Net Worth Calculator: Offers a clear snapshot of overall financial health.
- Personal Finance Ratios
- Emergency Fund Ratio: Educates users on the importance of having a safety net.
- Debt to Asset Ratio: Helps users evaluate their leverage and financial risk.
- Investment Assets to Total Assets Ratio: Encourages a focus on long-term growth and asset allocation.
- Comparison Net Worth by Age Chart: Provides context for users to understand their financial progress relative to peers.
- Goal-setting Table: Encourages users to define and prioritize their financial goals.
- Retirement Investment Target Estimator: Offers guidance on how much to save for retirement based on desired income.
- Investment Calculator: Helps users estimate future investment growth, making investing less intimidating.
- Financial Milestone Tracker: Keeps users motivated by tracking key financial achievements.
I should really be selling this… Anyway, grab it below!
Common Mistakes to Avoid in Financial Planning
Before I wrap up, let me highlight some common mistakes that can derail your financial planning efforts:
- Procrastination: The biggest mistake is not starting. There will never be a “perfect” time to begin—just start.
- Neglecting Your Expenses: Ignoring your outgoings is like driving with your eyes closed. It’s impossible to reach your destination.
- Trying to Do Everything at Once: You don’t have to tackle every aspect of financial planning at the same time. Use my Financial Planning Starter Kit to find where to start and build from there.
- Not Setting Clear Goals: Without specific goals, your financial planning will lack direction. Be intentional.
How to Get Started with Financial Planning
The truth is that securing your financial future isn’t as scary as it sounds. The key is starting small and using financial planning tools that fit your needs.
If you’re ready to take control of your financial future but don’t know where to start and my Financial Planning Starter Kit didn’t quite do it for you, then book a free chat with me below. We’ll see what we can do together.
