Often, financial advisors are incredibly helpful. However, to create a financial plan, there's no reason to pay the added expense. Now, if you need extra guidance and coaching that an advisor provides, that is all right. But before going that route, review the information provided, and you'll see that creating a financial plan isn't as difficult as you might think.

Adding to the benefit of creating your own plan is the money you would've spent on an advisor can go toward something else. To achieve your short and long-term goals, you have to make good decisions.

Identify Your Goals

First, identify your goals. For instance, what do you want to do with your money, not just now, but also in the future? Do you want to retire early? Do you want to travel around the world? Do you want to start a business?

This is essential when creating a financial plan. By identifying your goals, you'll better understand what you want for the remainder of your life and how your money will help. As part of this exercise, you want to include short- and long-term goals. For example, a short-term goal might involve moving to a nicer apartment, while a long-term goal could entail buying a house.

Buying Your Own Financial Planning Software

There are a lot of free calculators out there for financial and retirement planning. But you know what they say: "You get what you pay for." The vast majority of these free calculators can be very simple and therefore inaccurate. 

If you want to create a plan that you have confidence in, you really do need to spend some money. There are great options out there now, such as The WealthTrace Financial and Retirement Planner and The Flexible Retirement Planner.  WealthTrace is the more modern of the two. It is web-based and allows its users to import their investment information. The Flexible Retirement Planner must be downloaded and investments must be entered manually. But both offer detailed results with Monte Carlo simulations that show a probability of never running out of money.

Assets Versus Liabilities Versus Cash Flow

When creating a financial plan you need to look at all your finances, including assets, liabilities, and cash flow.

• Assets - This includes anything you own, whether furniture, a vehicle, home, collectibles, artwork, and so on. Include money in a checking or savings account, as well as any retirement accounts.

• Liabilities - This covers all outstanding debts such as a car loan, mortgage, student loan, credit card balances, etc. 

Now, you want to subtract your liabilities from your assets. The total equals your net worth. You might have a negative net worth, which is common, especially if you have student loans.

• Cash Flow - Knowing your net worth, you need to factor in your cash flow. This is what you spend compared to what you earn. The easiest way to do this is by putting information from your bank accounts and credit card statements into a spreadsheet. That way, you can easily see your income versus debt.

If you spend more than you earn, you'll need to make adjustments. However, if the reverse is true, that's great news.

Now, carefully analyze every item on your spreadsheet, looking for things you don't need. Sure, having a Netflix account and watching movies on HBO are nice but ask yourself if these expenses will help you achieve your goals. Remember, adjusting your budget works both ways. In other words, once you get your spending under control, you can always add things back into your budget.

Remind yourself that by deleting things, you'll reach your goals. So, if buying a house is your objective, you should probably reconsider going out for dinner and drinks with your friends every weekend.

Investment Plan

For the next step, you need to look at investments. Often, people turn to a professional for this, but there's no reason you can't come up with an investment plan on your own.

Robo-Advisor

A robo-advisor, which is a digital software platform, will help you create a portfolio. You'll start by answering some basic questions like age, money in retirement savings, and when you want to retire. From there, the software generates a report that shows you the type of investments to consider. It'll also reveal just how much money you can save monthly.

Sure, a professional financial advisor can customize a plan for you in exchange for hundreds of dollars. Instead, why not let a robo-advisor do the same thing but for a much lower price. Although you have multiple options, both Wealthfront and Betterment rank among the best.

One important note ... you're only allowed to use a robo-advisor if you have an IRA (Individual Retirement Account). If you have a 401(k) or 403(b) through your employer, the company should provide you with a list of different funds available. Preferably, choose a target-date fund. Companies like T. Rowe Price, Vanguard, and Charles Schwab have excellent choices.

So, what's a target-date fund? This is a type of "set it and forget it" investing. You simply choose a target-date fund, going with one that has a date as close as possible to your retirement goal. Then, you select how much money to invest monthly. From there, you put the account to the side. As the fund gets closer to the target date, it'll reallocate itself. That way, you don't have to constantly monitor it.

Hiring a Financial Investor

At some point, you might need the services of a reputable financial advisor, and that's okay. Especially if you end up in a unique situation, such as inheriting a lot of money, this expert will provide tremendous value in helping you set up a financial plan accordingly.

When choosing a financial advisor, always go with one that charges by the hour or month. You want to avoid someone who charges on a percentage basis of your total earnings. Also, stay away from advisors who earn commission on recommended products. Overall, the individual you hire should offer a service that's 100 percent dedicated to helping you achieve your goal...nothing more.

The Bottom Line

You may need the services of a financial advisor at some point. However, to create a financial plan, this is something you can do yourself. Just follow the information provided, and you'll be on your way to reaching whatever goal you set.