financial planning

Personal financial planning doesn’t have to be complicated. Using a financial literacy checklist will help you create a budget, manage debt, and plan for your future. This guide will introduce you to some financial basics and give you greater confidence in your money management.

financial planning

Financial Planning Impacts Your Past, Present, and Future

Financial planning will impact the way you manage past debts, current finances, and future plans. Unfortunately, more than 4 in 5 Americans (83%) fail to stick to their budget, according to a survey from NerdWallet. And another quarter (22%) have no emergency savings to cover unexpected car repairs or medical bills.

Improving your financial literacy can prevent you from becoming one of these statistics. Additionally, you’ll have greater peace of mind knowing you can manage your household finances.

Financial Literacy Checklist

A financial literacy checklist will help you get a better grasp of basic financial terminology and concepts. What are the most important things to know as a consumer and investor?

Financial Plan

A financial plan is a documented strategy for managing your past debt, current income, and future goals. To create your financial plan, assess your current financial situation, then set goals you can reach in the short- or long-term future. This can include retirement planning, saving for a house, or other goals. 

The best plans include benchmarks so you can track your progress as you pursue these goals.


A household budget is a plan for how you intend to spend your money each month. To create a budget, list all of your monthly expenses, then compare this list to your monthly income. 

Many experts recommend a 50-30-20 approach to budgeting. This means you’ll set apart 50% of your income for your needs (housing, food, etc.), 30% for “wants” (eating out, going to the movies, etc.), and the remaining 20% to save or invest.

Credit Score

Your credit score is a numerical evaluation of your creditworthiness. Your score ranges from 300 to 850, with scores of 700 or above considered “good.” The higher your score, the easier it will be to secure loans and receive lower interest rates.

Aim to check your credit score once each year to know where you stand — or to correct errors that may be artificially lowering your score. Each of the three credit bureaus will allow you to check your score for free once each year, and checking your credit will not hurt your score.

Interest Rates

Banks and lending institutions earn money by lending you money and then charging you interest when you repay the loan. Credit card companies also charge interest on your credit card balance each month. Understanding interest rates is important for understanding your lending options and how you manage existing debts. 

At the same time, interest rates also impact your investments. The higher the interest rate on an investment, the greater your potential returns. For instance, stock market investing offers an average rate of return of 10%, which is higher than most high-yield savings accounts (usually 4% to 5%, at most).

Emergency Savings

An emergency fund is simply a savings account that contains money set aside for unforeseen events. If your car breaks down or you need to replace your fridge, you have money set aside for just that purpose. 

Otherwise, you may be forced to dip into your regular savings account to cover these costs or, worse, put these costs on your credit card.

Aim to have at least three to six months’ worth of household expenses set aside. This can be invaluable if you ever lose your job.

Stocks and Shares

Publicly traded companies allow investors to purchase “shares” of stock, which represent partial ownership of the company as a whole. These shares of stock are traded on the U.S. stock exchange, though investors can also dabble in international markets if they choose.

The goal is to purchase stocks at one price and then sell them for a profit. Therefore, investors seek to research their trading decisions carefully to pinpoint top-performing companies and minimize the risk of underperforming stocks.

Mutual Funds

Investors can also purchase a collection of stocks known as a “fund.” Mutual funds, for example, allow investors to buy a bundle of stocks, achieving instant diversity within their investment portfolio. 

Exchange-traded funds (ETFs) are another type of “fund,” different from mutual funds in that ETFs can be bought and sold directly from the stock market just like an individual stock. Index funds work similarly to mutual funds, though these are designed to mirror the performance of a market index such as the S&P 500.


Both a 401(k) and an individual retirement account (IRA) are common types of retirement accounts. A 401(k) is typically issued by your employer, and some employers match their employees’ contributions up to a certain amount.

An IRA is also a tax-advantaged account, though investors can also choose a Roth IRA in which your current contributions are made tax-free. Choosing the right retirement vehicle takes some strategy, and some may want to consult a financial advisor to help plan for the future.


Some investors may receive “dividends” from the companies they invest in. This happens when a company gives a portion of their profits back to their investors as a way of thanking them or to attract new investors.

While dividends are generally small, they have the advantage of being passive income for investors. You may also have the option of reinvesting these dividends to increase your ownership of the company or invest the dividend elsewhere.

Certificates of Deposit

Not all savings accounts are the same. A certificate of deposit (CD) account is a high-yield savings account, meaning you’ll receive a higher interest rate on money in a CD than other types of savings accounts.

Most CDs have stipulations, however. You’ll usually have to keep your money in the account for a predetermined period, often six months or more. Withdrawing early can result in penalties. 


It’s common for consumer reports to discuss the impact of “inflation.” This term simply refers to consumer prices rising faster than the value of the dollar, which explains why it can be a struggle to pay your grocery bills or put gas in the car.

The causes of inflation can be various. It can occur when the demand for a product outstrips the supply, often due to a shortage of materials or snags in the supply chain. Accounting for inflation can help you get the most out of your household budget and plan for your changing expenses.

Tax Planning

The federal government and most states require that you pay taxes on any money you earn throughout the year. You’ll also pay a separate tax on “capital gains,” which refers to the money you earn when you sell a major investment.

Tax planning is how you strategize how you pay taxes. For example, charitable donations can offset your tax liability. Selling long-term capital gains (investments you’ve held for over a year) will usually result in lower taxes than selling short-term assets. 

For complex situations, you may want to consult a tax professional to build an effective strategy.

financial planning

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