The Basics of Financial Planning

The Basics of Financial Planning

Do you wonder what you should do to get your financial planning ducks in a row?

If you answered yes, then you’re going to love all the info on the basics of financial planning this article brings. From budgets to estate plans. From insurance to proven money management plans. We have it all. And, once you read on, you will too.

Get on a budget.

You can build incredible things with your money, but you can’t go anywhere if you don’t first have a budget. It’s like all the awesome pallet projects you see online. You can make a headboard, a bike rack, a compost bin, or a workbench on which to make even more pallet creations. But you can’t make any of those upcycled dreams come true if you don’t first have a pallet.

The same is true with your money goals and financial dreams. You can build incredible things with your money, but you can’t go anywhere if you don’t first have a budget. So before you take any other step in your financial planning, you need a budget.

Put an estate plan in place.

After your budget’s in place, it’s time to do some very adult, responsible, not really fun—but really important—things. To make it more enjoyable, we’ll pretend it’s an adventure-filled train tour. First stop: estate planning.


Nobody wants to talk about it, but we’re going to talk about it. Because that’s just how important it is. You need a will to protect your family after you, er . . . you know, pass. Though some avoid making wills because of time, confusion, cost or how much of a downer it is, don’t let anything stop you from this important financial responsibility!

Power of Attorney

This is where you lay out your end-of-life wishes and name the person who is allowed to make medical and financial decisions for you if you’re no longer able to. Again—not a super fun topic. But we have super good news.

You can get your will and power of attorney knocked out in one 20-minute-or-less online experience with our recommended company: Mama Bear. The name alone is reason to use them, but they’re also easy and legit in the legal form world. Protection, confidence and peace of mind in one packaged deal? Yes, please.

Set up all your insurance needs.

Next on our financial planning tour is Insurance Land. No, that’s not an amusement park with costumed characters—it’s way more important.

Health Insurance

You need this. Research shows medical issues were the cause of 66.5% of bankruptcies.1 That’s because a major medical emergency can cost hundreds of thousands of dollars. Most of us don’t have that lying around—so get health insurance.

If you and your family are pretty healthy, look into a high deductible health plan with a Health Savings Account (HSA). Higher deductibles mean lower premiums, and putting money into your HSA to pay for medical expenses can save you money at tax time.   

Term Life Insurance

Here are the basic details: You need a 20- to 30-year term life insurance policy for 10–12 times your income.

Why term over whole life insurance? Many, many, many reasons. For one, with whole life insurance, you pay that premium for . . . well, your whole life. So even after you’re retired and living comfortably on all your investments, you’re still paying for a life insurance plan you don’t even need anymore. No, thank you.

Another reason we’re team term life is because you’ll save around $300 a month (that’s $3,600 or more a year) with term life instead of whole life. That’s a whole lot of money and a whole lot of reasons to say no to whole life insurance.

Auto Insurance 

Driving without auto insurance is against the law. So there’s one incredible reason to make sure you have this coverage. Again, if you have a fully funded emergency fund, high deductibles are your BFF. And make sure you carry plenty of liability coverage—at least $500,000 worth of it.

Here’s your bonus tip: Most of us set up a policy and keep it until we get a different car. But your car insurance policy could be outdated or—way worse—you might be overpaying! No one wants that. Find a pro and check in on your policy!

Home Insurance 

Home is where the heart is. Home is where your stuff is. If you’re a homeowner, your financial planning isn’t complete without home insurance coverage. We recommend a policy that at least helps you rebuild your home (extended dwelling coverage), replace your stuff (personal property), and cover injuries and damages to your home (liability). And depending on your location, you should look into natural disaster coverages that aren’t in your regular policy.

Renters, you aren’t off the hook. You need renters’ insurance! You’ve still got stuff, and your landlord isn’t required to pay you anything to replace it if there’s a fire, flood, burglary or any other disaster.  

Long-Term Care 

Not everyone needs this coverage (yet), but once you turn 60, long-term care is essential. This insurance covers important long-term costs (hence the name) not covered by Medicare. Being covered by long-term care insurance protects your retirement savings from costly health expenses and saves you from a ton of financial stress. Keep this one on your radar for the future.

Long-Term Disability Insurance 

It’s easy to say, “It won’t happen to me.” But that’s playing with odds you can’t afford. One-fourth of today’s 20-year-olds will experience a disability by age 67.2 If you end up being one of the four, long-term disability insurance will replace your lost income due to a permanent disability.

Identity Theft Protection

It’s 2019, friends. ID theft is real. Unless you’re living a hermit life 100% off the grid in a literal cave, you need this protection. In 2018, the FTC’s Bureau of Consumer Protection announced consumer complaints hitting 1.1 million fraud reports and $905 million lost.3 That’s not just an expensive inconvenience. It’s a true threat. Protect your money. Protect your identity. Get ID theft protection.

Umbrella Policy

If you have a net worth of $500,000 or more, first of all—bravo! Second of all, you should look into a personal liability umbrella policy for an extra layer of protection. Think of it as using an SPF of 30 instead of the minimum recommendation of 15. Don’t get burned. Get covered with an umbrella policy.

So. That was a lot. If you don’t know where to start as you’re making sure you’ve got all your insurance needs covered, we’ve got you covered with our 5-Minute Coverage Checkup. It’s free. It’s quick. And it gives you clear steps to take in this vital part of your financial planning.

Get on a proven plan to meet your money goals.

The last stop for your financial planning train is to get on the proven plan to make all your money goals come true. Goals are actionable dreams. They don’t just happen with wishes or good intentions.

So take action, one Baby Step at a time. (That’s why they’re called the Baby Steps, though we’re tempted to nickname them Genius Steps because they sure make you look and feel like one.)

And as you accomplish each step, you’ll become closer and closer to the end financial goal of living a secure, glorious retirement where you can live well and help others. But it starts on Baby Step 1:

1. Create a starter emergency fund.

Life happens. Be ready with $1,000 in the bank as a starter emergency fund. This way, you’ll meet life with cash instead of crisis.

2. Pay off all debt using the debt snowball.

Debt’s good for one thing: holding you back. No thank you, debt—we’re moving forward.

So the second step of our proven plan is to pay off all debt, starting with the one with the smallest balance. Why start there? Just like the old arcade boxing games, it’s easier to knock out the smallest opponent first. Then, when you’ve got your confidence up and your momentum going, the rest will be easier to take down blow by blow by blow.

3. Build a fully funded emergency fund.

Debt’s gone. So long, debt, not nice to know you. Now it’s time to keep yourself safe from the temptation of running back to debt for any future emergency. That means building up a fully funded emergency fund of three to six months of expenses.

Put it someplace easy to access in an emergency, like a money market account. And then enjoy the security of knowing that, though rainy days will come, you’ve saved up for them.

4. Invest 15% of your income for retirement.

Once your emergency fund is full-up, begin putting 15% of your gross income into retirement accounts. First look into your employer’s 401(k). Max out their match, if one is offered. Then open up a Roth IRA for the rest.

Once you’ve got that 15% going in, you’ll start working on the next two steps as you continue to invest. That’s right, Baby Step 4, 5 and 6 are a powerful trio, working together, at the same time, on a vendetta to make your money live its best life for your future.

5. Save for your kid’s college fund.

If you’ve got kids at home, start stashing cash away for their college education. Do not even consider school loans. They are the sneakiest of debts: promising to make young people’s dreams come true then holding them back from making any of that happen after graduation because the loan repayment costs are so suffocatingly high.

So as you’re saving up for their college funds, also give your kids great financial guidance. This includes selecting an affordable school and constantly applying for all of the grants and scholarships possible, like a forward-thinking squirrel gathering acorns for the winter.

The gift of cash and knowledge of how to get their degree debt-free are two of the best financial foundations you can create for your children.

6. Pay off your home mortgage early.

Imagine an extra $1,515 in your budget every month. That’s the average mortgage in America.4 So with this Baby Step, you’re paying off more on your home payment so you can move away from having a mortgage later on.

7. Live and give like no one else.

Once you’re mortgage-free, empty-nesting, and ready to retire, you’re in the step of reward and forward. You get to reward yourself by taking it easy—or taking all those trips around the world you always dreamed of. And you get pay it forward by helping others in a way you never could when you were in the middle of your own debt-free journey. What a beautiful place to be.

So there you go. Start working your way through those four main areas to ride this financial planning train into the sunset of Responsibleville with the ultimate destination of Retirementown. Whether that, for you, is an ongoing RV tour of American attractions or a retirement home on the lake, you’ve got this.

It just takes knowing what steps to take, then taking them. And knowing the best people to get on your team who will help you along the path—trusted financial planning and insurance pros! Connect with one to move forward in confidence.

Start it all now. Do it for your future. Do it for you.