Creating and following a financial plan will help you determine exactly how much money you need to set aside to reach your financial goals.

A financial plan shows you what you need to do in order to pay your bills and meet financial goals. Without a plan, you may spend too much on nonessentials, such as eating out or new gadgets, leaving you without enough money for bills or rent at the end of the month. Consider creating and following a plan that prioritizes bills and savings while limiting extra spending. This plan will help you figure out exactly how much money you need to set aside to reach your goals, such as paying off credit card debt or saving for a new car.

Ready to create a plan of your own? Here’s what you need to do.

Set Your Goals

Before you begin, you should have a total of your essential monthly expenses: rent or mortgage, bills, food, clothing, and so on. Once you have this information, total your take-home earnings for the month. Then, you can begin to work on your goals.

A good time frame for your plan is six months: enough time to make progress, but short enough that you can realistically predict your financial circumstances. Think about your current and future expenses over the next few months. One goal might be to open a savings account and create an emergency fund if you don’t already have money set aside to cover living expenses for a set period.

Another goal may be to pay off debt. Let’s say you have high balances on two credit cards and a student loan. For six months, you can set a goal of paying one-fourth of the total you owe on the highest-interest credit card while continuing to make minimum payments on the other two debts.

Consider setting up an automatic transfer to a savings account to help you stick to your goals. You don’t have to use automatic transfers in your financial plan, but it’s convenient to set up and makes following through easier.

Crunch the Numbers

Once you have your goals in mind, you need to figure out what to do to reach them. For example, if you’re planning to buy a car, your goal may be to save up enough money for a down payment. To save $1,200 over six months, you must set aside about $200 a month.

Take a look at your current income and expenses to make sure your plan is doable. You may need to increase your income, if possible, by working extra hours or getting a part-time job. You may need to cut back on spending, for instance, by bringing lunch to work or canceling your streaming music subscription.

Always keep in mind that it’s okay to adjust a goal if you realize you won’t be able to meet it within six months.

Plan for Setbacks

The next step is to plan for setbacks. Don’t give up on your plan when something goes wrong. Instead, have alternate ideas ready to help you get back on track. For example, if your hours are suddenly cut at work and your monthly income turns out to be lower than you were counting on, plan on borrowing DVDs from a library instead of going to the movies.

Setbacks are a normal part of pursuing goals, so it’s best to expect them and be prepared.

Evaluate Your Progress

After you create your plan, put it into action. Look back at it every month to check your progress. Adjust the numbers accordingly, and make any necessary changes. Reviewing your goals and observing success will motivate you to keep working toward them.

Improving your finances without a financial plan is like taking a road trip without a map. You’ll go further with a plan to guide you.

Sarah Brodsky

About the AuthorSarah Brodsky

Sarah Brodsky writes about economics, personal finance, religion, and culture. She covers credit counseling, debt, and personal finance for Investopedia and the CESI Financial blog and has contributed work on Judaism and culture to the Jewish Daily Forward's Sisterhood blog. Her writing has appeared in the Washington Free Beacon, the St. Louis Business Journal, Info Tech & Telecom News, the Springfield News-Leader,, School Reform News, and other publications. She earned a bachelor's degree in economics from the University of Chicago.