Building Financial Confidence: The Power of a Personal Financial Plan

Imagine setting out on a road trip with one in three Americans without knowing how to read a map or operate a GPS.

This scenario mirrors the current reality of navigating personal finances for many.

A recent NerdWallet survey, conducted online by The Harris Poll, reveals that approximately 32% of Americans lack confidence in their ability to create a financial plan.

A financial plan is a dynamic, living document that outlines your current financial standing, your long-term goals, and the strategic steps required to achieve them.

A Roadmap to Your Financial Future

For those new to financial planning, the process can seem overwhelming, costly, or even unnecessary. However, a financial plan does not have to be complicated or expensive. You do not need a high income or substantial savings to begin. Rather than viewing wealth as a prerequisite for planning, understand that a financial plan is the essential tool used to build wealth over time.

Just as a map requires a starting point, a financial plan must begin by assessing your current position. This involves listing all your savings and investments, alongside any outstanding debts. Keeping a simple spreadsheet of every account and its balance is an effective way to visualize this starting point.

In addition to assets and liabilities, your plan should track your monthly income and regular expenses. Utilizing a free budgeting application to monitor purchases can help you analyze monthly and annual spending trends across different categories.

These details illuminate key indicators of your financial health, highlighting both strengths—such as spending less than you earn—and weaknesses, such as high-interest debt hindering your financial progress.“Taking the first step in financial planning—understanding your current baseline—is often the most challenging,” explains Sean Pyles, a certified financial planner and co-host of NerdWallet’s “Smart Money” podcast. “This process often requires confronting emotional financial baggage or spending habits that have held you back. However, understanding where your money stands today serves as a powerful motivator on your journey to achieving your life and financial goals.”

Once you have established this foundational baseline, your financial plan should define your specific monetary objectives, whether that includes buying a home, saving for a trip, or starting a family.

Finally, the plan must map out how you will transition from your current situation to your desired goals. Because every individual’s circumstances are unique, your strategy will include a mix of immediate actions, such as dining out less and cooking at home, alongside long-term goals, like acquiring further education or experience for a higher-paying career.

Honestly, mapping out these specific actions has been challenging over the past few years due to major life changes, including having a child and relocating multiple times. While my plans lacked precise detail, I recognized that unpredictability demands financial flexibility. Consequently, I prioritized building cash savings, which provided the liquidity needed to handle life’s unexpected transitions without resorting to debt.

Professional Planning vs. Do-It-Yourself

While creating a financial plan is undoubtedly valuable, determining who should actually create it can be less clear.

A do-it-yourself (DIY) approach is an excellent option for individuals who feel confident managing their finances, as it is entirely free. Conversely, while working with a professional financial advisor may seem intimidating and involves a fee, their expertise can provide invaluable insights for those who prefer structured, professional guidance.

Rather than viewing these two methods as mutually exclusive, consider a hybrid strategy: begin with a DIY approach to establish your baseline, and later transition to a professional advisor as your needs grow more complex.

A straightforward financial planning template works well for most people and can be assembled independently with a bit of effort. A solid template addresses core areas such as budgeting, retirement planning, and debt reduction. Over time, taking active ownership of your finances will naturally build your money confidence.Eventually, you will encounter more complex financial questions, whether a few weeks into your DIY efforts or several years down the road. At that point, seeking professional advice can ensure your financial plan remains aligned with your goals and on the right track.

“Identifying the blind spots in your financial knowledge is one of the most valuable services a financial planner offers,” Pyles notes. “You might be diligently saving for retirement, yet remain underinsured or have gaps in your estate planning. A certified financial planner excels at exposing these vulnerabilities and providing a clear path to address them.”

Next Steps for Your Financial Plan

Investing time in developing your own plan equips you with significant advantages when you are ready to collaborate with a professional advisor:

Simplified onboarding. Most financial advisors begin by reviewing your assets, liabilities, budget, and goals. Having this information already compiled in your DIY plan makes the initial consultation seamless.
• Better advisor matching. Your search for a suitable financial advisor will be guided by the specific challenges you have identified. Without a preliminary plan, you might struggle to pinpoint the areas where you need the most professional support.

• Maximizing client value. While advisors often teach basic financial concepts to clients, having a solid baseline understanding allows you to bypass introductory lessons and focus directly on high-value, specialized advice.

The primary obstacle to building financial confidence is simply taking the first step. Procrastinating or avoiding thoughts about your future can lead to missed opportunities and allow minor issues to escalate into major financial setbacks.

“The ultimate purpose of a financial plan is to ensure your money works diligently so you can build the life you desire,” Pyles emphasizes. “Time is often your most valuable asset. Since achieving major financial goals takes years or decades, the choices you make today will have long-lasting consequences for your financial future.”

Financial confidence is built step by step. Practices that are now routine for me, such as reviewing my spending, monitoring retirement contributions, and setting an annual budget, once felt like significant milestones. Wherever you stand today, identify your next logical step, and take action.

About the author

Kurt Woock is a personal finance writer at NerdWallet. He previously served as a writer and educator for Colorado PERA, a retirement system for public employees, and as a legislative editor for the Colorado General Assembly. Kurt holds a B.A. from Valparaiso University and an M.A. in journalism from the University of Missouri-Columbia. He is based in Chicago.

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