What Does Financial Planning Include?

Like all money-related topics, financial planning can be intimidating at first. But you will be surprised this subject is eminently practical as you work your way through it. I’m sure you have already stumbled upon many well-written blogs on how to make your own financial plan. What I can offer you here today, perhaps, is a more simplified approach to financial planning.

Healthy financial planning includes the past, present, and future. You should plan on dealing with past money mistakes to prevent them from affecting the present. Plan your present because how you manage your finances today will impact your future. Finally, plan your future to leave a lasting legacy for your children.

Read on if you want to know more about what is included in financial planning. I will break down what areas in the past, present, and future you need to give more attention to.

Disclaimer: the information in this article is based only on the author’s opinion. It does not intend to give professional financial advice.

Family portraits on a table.
A nostalgic area in my parents’ house. A table with all our portraits since we were kids.

Fixing The Past

We all make mistakes. But sadly, the term “forgive and forget” isn’t commonly applied in the financial world. We should reconcile each matter we had in the past if we want to enjoy our present. This is the part most people overlook when making their financial plans. They thought they could simply sweep their mess under the rug and let it stay there forever.

Undealt issues such as debts will carry over from year to year until you finally settle them. Listed below are a few critical financial matters in the past you must resolve as soon as possible.

Pay Off Your Debts

I grew up knowing being in debt is a normal part of life. Shopping? Credit cards. Business? Get a loan. Need cash? Call a friend. Using other people’s money has always been a part of the equation in living my life. I only learned how harmful debts are after I got married in 2016. I arrived at a point where I no longer had money to pay my creditors, so the only thing I could do was to stay home and hide.

The worst thing about debts is that they grow exponentially over time. The longer you ignore them, the bigger they get. Credit card debts, for example, grow at an average rate of 36% per year. Based on the Rule of 72, those debts will double in only two years! Imagine how immense the number would be if you neglected them for ten years.

Bury The Dead

A close friend of mine was about to start his new company five years after his last one failed. Unfortunately, as he processed the paperwork, he learned an $XX, XXX amount in taxes and penalties needed to be settled before he could open the new business. Later we found out he failed to formally close his previous company.

I also had a similar experience when I reapplied to an internet service. My name got blacklisted from the provider because I forgot to settle the remaining balance for our old address two years ago! My only option now was to look for another provider or pay the unsettled accounts, plus penalties.

When you terminate a business, a subscription, or a service, make sure you close them properly. This is what it means to bury the dead. Leaving accounts open may come back and bite you one day.

Patch Relationships

Why talk about relationships in financial planning? Well, simply put, relationships are vital to your financial health. Losing your spouse, customers, mentors, and support group is costly. This one hit home when I lost one of my biggest customers three years ago merely because I lost my cool. It has become among my greatest regrets and lessons learned in my professional life.

What about marriage? According to Fool.com, filing for a divorce can cost up to $12,900! Why spend that amount when you can patch things up with your wife? More than its financial implications, impaired relationships will also cost us time, opportunities, and emotional well-being to function optimally in our careers.

In his book, The Millionaire Mind, Dr. Thomas Stanley revealed the importance of relationships in building wealth. 3 of the top 5 keys to financial success, according to 1,000+ millionaires he interviewed, pertained to creating healthy relationships. This includes being honest, having good social skills, and having a supportive spouse.

Here’s how they ranked based on the survey:

  1. Being honest.
  2. Being disciplined.
  3. Having good social skills.
  4. Having a supportive spouse.
  5. Working hard.

Mending broken relationships should be part of your financial plan. List the names of people you need to patch things up with. It sure won’t be easy, and there are no guarantees you will be able to fix those relationships. But saving even one of them can make a tremendous difference to your bottom line.

Get Health Insurance

Fixing the past includes watching out for known hereditary diseases in your family. Investigate if anyone in your immediate relatives has experienced some critical illnesses during their younger years. If you found your family has generational ailments, it is wise to get insurance to cover potential medical expenses. This will help you sleep better at night.

Stewarding The Present

Many plans fail because people tend to dwell too much in the past or live in the future. The key to successful financial planning is making the best decision possible with what we have in the present. It is good to learn from the past and prepare for the future. But 70% of financial planning should be about what is happening today.

Set A Goal

Set goals based on what is in your heart currently. Do not think too far. Ask, “What is the one thing that will make the greatest and immediate impact on my life today?” To me, it was paying off my debts. I got sick and tired of owing people money because it has brought a lot of strain on my family. Five years ago, I decided to live within my means and start setting aside a portion of my income to settle my obligations. I did not have a specific timeline on when I should accomplish it. My only mindset is to stick to it until it’s done. Today I still have about 8% left. I pray I can finally pay them all off by year-end.

Give Priority To Daily Operations

Using our current resources to fix our past or ensure the future is tempting. But the priority should be the present. Do not let paying your debts or saving for your retirement hamper your day-to-day operations. So how do you balance the past, present, and future? The ideal way to do this is to create a budget. It will vary depending on your financial capacity. But the ratio I personally used initially was 15/15/70.

  • 15% of my income goes to fixing the past, like debts payment.
  • 15% goes to preparing for the future, such as retirement and children’s college education.
  • 70% goes to fueling our daily needs.

Build An Emergency Fund

Wise management of the present includes planning for unplannable situations. No one plans to get sick, be involved in an accident, be laid off from work, or have their car breakdown. These are circumstances we do not want to be part of, but denying their reality will only put us at a disadvantage. Most financial planners address these matters by setting up an emergency fund.

The emergency fund is an amount intended to cover unforeseen expenses. A healthy sum is about six months to a year’s worth of your monthly expenditures. Some keep their credit cards for this purpose, but that is not a healthy way to prepare for emergencies. Keeping you out of debt is one of the main functions of an emergency fund.

As I write this post, my car battery has actually broken down. Thanks to my emergency fund, I can have it replaced in no time.

Save Your Money

This verse always resonates with me: Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it. — Proverbs 21:20. Not because you have the money means you have to consume it all. Good financial planning includes being intentional in saving your resources. Later you’ll know how crucial this discipline is to your future. But for the present, your savings will give you peace of mind and allow you to seize opportunities that might come your way.

Here is a better look at the wooden table with our family portraits.

Thinking About The Future

There are two kinds of people I have observed when it comes to the future so far. One who doesn’t care. And one who has been living there all their lives. One who only lives for the present. And another who always sacrifices their present in place for a better tomorrow. These are two extremes you should avoid. Living in the present while peeking at the future is the best mindset when planning long-term.

The danger of planning for the future is that it could be romanticized. Since it is still ten to twenty years down the road, we could include pursuits that have no roots. Like, owning a mansion, traveling the world, or retiring to a farm. I’m not saying these are bad or cannot be achieved. But these are, for lack of a better term, low-quality planning. An excellent way of planning for the future is basing them on what you already have today.


Investing is the act of acquiring assets that can make potential future returns. These can be buying equities from different companies, owning real estate, or joining mutual funds. Investing should be part of your financial plan if you wish to grow your wealth over time. This is why saving is crucial, as we mentioned earlier. You can only invest with your extra cash to prevent it from disrupting your daily operations.

Prepare For Your Children’s College Education

Parents, it is wise to plan for your children’s college education. Sending our kids to college will be one of the most expensive tasks we have to do. The average tuition fee as of today for public schools per year is $21,000; $32,800 for private schools. If your child is less than one year old, don’t be surprised if these amounts triple by the time he/she is ready to go to college. This is the reason I encourage you to prepare for it as early as now. There are a couple of ways to do this:

  • Buy a college plan. This is an ideal option for people who are not investment-savvy. This plan will help them be more disciplined in saving for their children’s education. But I personally do not 100% recommend this because of the low-interest rate and the number of fees involved in the program.
  • Invest in a mutual fund. Another route is to create a nest egg and invest in a money market fund, a bond fund, or an index fund. A nest egg is a term used for the sum of money saved for particular use in the future. I like this approach even though it is a bit riskier than the previous option. Money here has more potential to grow.

Consider Your Life After Retirement

There are only two ways to make money: investments and physical labor. But there will come a time when we will become too old to do manual work. What happens now if you haven’t bought enough assets? Don’t ever think it’s too early to plan for your retirement. The earlier you prepare, the more advantageous it is for you. Here is a plain vanilla method for estimating how much you roughly need for life after retirement: (Caution: this will sound a little morbid.)

  • Let’s say you retire at 65 and have about 20 years left on this Earth. How much yearly allowance do you think is enough for you to live comfortably?
  • If you answered, $48,000. You multiply the amount by 20, and you will see how much you must save before you turn 65. In this case, it’s $960,000.
  • It is also imperative to deposit this amount in a fund that could yield at least 4% annually. This is to help your retirement fund grow in case you outlive it.

Plan Your Estate

If you have assets, plan your estates. Estates are the assets of a dead person. Estate planning is the act of giving your investments to the right people or organizations after you have been promoted to Eternity. Another verse that resonates with me when it comes to planning your estates is Ecclesiastes 2:18-19:

I hated all the things I had toiled for under the sun, because I must leave them to the one who comes after me. And who knows whether that person will be wise or foolish? Yet they will have control over all the fruit of my toil into which I have poured my effort and skill under the sun. This too is meaningless.

Plan your estates. Because your life’s work may only fall to the wrong people if you do not.

Closing Thoughts

Financial planning includes fixing your past, stewarding the present, and thinking about the future. But if I am to rank based on priority, it will look something like this:

  • 70% Present
  • 20% Future
  • 10% Past

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Jed Chan

Jed Chan is the principal creator of TheLearningDadBlog.com, a website dedicated to providing helpful resources on fatherhood. He is a passionate learner who would normally immerse himself in topics of his interest. Jed carefully studied the subjects of finance, e-business, and parenting before becoming a full-time stay-at-home dad.

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