Bitpanda Money Matters #03: create a financial plan for 2025

Why do you need a financial plan?

A financial plan gives you control over your money, clarity about your financial situation and a structured approach to achieving your goals. It helps you track where your income is going, manage expenses wisely and allocate savings toward short- and long-term objectives. 

Beyond everyday budgeting, a financial plan prepares you for unexpected events - like emergencies or income loss -  by building financial security through savings and insurance. It also allows you to focus on creating wealth and planning for major milestones, such as buying a home or retiring comfortably. 

If you read last week's article, you've already laid the groundwork by setting SMART goals as the foundation for your financial plan. If you missed it, don’t worry – head back and complete that step first.

How to build a financial plan

Building a financial plan helps you take control of your finances and work toward your (SMART) goals with confidence. The financial audit you’ve already completed is invaluable here, as it provides all the necessary numbers and details about your income, expenses and overall financial situation. 

Have your financial audit ready, and use it as a foundation to follow these steps for structuring your plan effectively:

1. Create an overview of income and expenses

Start by reviewing the results of your audit to document your income and expenses. List all sources of income, such as your salary and side earnings, alongside fixed costs like rent, insurance and subscriptions. Include variable expenses such as shopping and leisure activities. This step highlights savings opportunities and shows how much money you have available each month.

2. Assess risks and prepare for them

Unexpected expenses – such as medical emergencies, job loss or urgent home repairs – can quickly derail your financial progress. A solid financial plan prepares you for these uncertainties by focusing on two key elements: adequate insurance coverage and an emergency fund.

Start by evaluating your current insurance policies, including health, liability and disability insurance, to ensure they provide sufficient protection. 

Equally important is building an emergency fund. Aim to save three to six months’ worth of expenses to protect against financial bottlenecks and maintain stability during unexpected challenges. Here’s how it works:

• Set a target: Aim to save 3 to 6 months’ worth of living expenses.

• Start small: if saving several months of expenses feels overwhelming, begin with a smaller target, such as one month’s worth of costs.

• Automate your savings: Set up automatic transfers to a dedicated savings account and only use it for emergencies.

Example: If your monthly expenses are €2,000, aim to save between €6,000 and €12,000 for emergencies.

3. Set clear financial goals

Defining clear financial goals gives your plan direction and ensures your efforts are focused. If you followed the last edition of Bitpanda Money Matters, you’ve already established your SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals, providing a strong foundation to build upon. These goals help you prioritise and align your financial plan to achieve both short- and long-term objectives.

Examples: Short-term goals might include saving for a vacation or purchasing a new gadget, while long-term goals could involve planning for retirement or buying a home. 

4. Organise your account structures

A well-organised account structure simplifies budgeting and helps you stay focused. Reevaluate your current account setup and organise your finances into dedicated accounts for:

• Fixed costs, like rent and utilities

• Savings, for building reserves or funding specific goals

• Investments, such as stocks, ETFs or other wealth-building options

This setup ensures transparency, allows you to track your progress, and supports sustainable financial management.

5. Focus on wealth-building strategies

The next step is to focus on wealth-building strategies. This involves exploring investments such as ETFs, stocks, bonds or other financial instruments that align with your goals, risk tolerance and time horizon. Next week, we’ll dive into wealth-building options and help you figure out how to choose the right investments. But if you’re eager to get started, why not check out the linked articles now? They’ll give you a great head start on the key concepts!

Putting it together

Now that you have the steps outlined, it’s time to bring your financial plan to life in a way that works best for you. 

Here’s how you can organise it:

• Create a visual roadmap: Use a mind map or flowchart to lay out your goals, accounts, and action steps, making it easy to see how everything connects.

• Build a checklist: Turn each step into a to-do list with deadlines, so you can track progress. 

• Use digital tools: Try budgeting apps or spreadsheets to manage your income, expenses and savings goals in one place.

Your financial plan could be as simple as this, outlined on a single sheet of paper:

Before you start putting your plan down on paper, you might be wondering how to figure out how much of your budget should go towards savings. A good starting point is to look at your SMART goals – they give you a clear direction and ensure your savings targets are realistic. 

Additionally, you can use frameworks like the 50/30/20 rule to easily figure out how much of your income to save and how much you can spend guilt-free each month:

The 50/30/20 rule

The 50/30/20 rule helps you figure out how to split your income between saving, spending and working toward your goals. Here is how it works: 

• 50% for needs: Allocate half your income to essential expenses like housing, utilities, groceries and insurance. If the final number exceeds 50% of your income, explore ways to reduce costs, such as purchasing groceries in bulk or comparing options for more affordable insurance.

• 30% for wants: Set aside 30% for discretionary spending, such as dining out, entertainment and hobbies. This category offers the most potential for savings if you need to cut back.

• 20% for savings and debt repayment: Dedicate the remaining 20% to building an emergency fund, contributing to investments or paying off debt.

Explore a detailed breakdown of the rule, complete with practical examples and real-life applications, in this article.

Other budgeting frameworks

The 50/30/20 rule can be tailored to fit different financial situations or personal goals, such as the 80/20 approach. In this variation, you allocate 80% of your income to needs and 20% to savings, while significantly cutting back on wants. The 60/20/20 method allows more room for fixed costs, leaving less for discretionary spending. We’ll dive into more savings strategies next week, but as you can see, these frameworks are flexible and should be adjusted to suit your individual needs.

Looking for practical ways to start saving today? Check out our tips for saving money in everyday life to put these frameworks into action.

Review and adjust regularly

A financial plan isn’t a one-and-done document. It’s a dynamic tool that should adapt to your changing life circumstances such as salary adjustments, unexpected expenses or new major purchases you’re planning for. Regular reviews are therefore essential to ensure your plan remains effective. 

Use these reviews to:

• Assess your progress toward your goals

• Adjust your budget if your income or expenses change

• Reallocate funds as needed to stay aligned with your priorities

Take action today

Crafting a financial plan may seem overwhelming at first, but taking it step by step makes the process much simpler. Here’s a brief recap of the steps you can work on before next week’s article, where we’ll dive into choosing the best savings and investment strategies:

1. Assess your emergency fund: Calculate your current savings and estimate how much (more) you would need to cover 3 to 6 months of essential expenses.

2. Review your smart goals for 2025: Revisit your goals and integrate them into your budgeting approach, whether it’s the 50/30/20 rule or another method that fits your lifestyle. Adjust your budget to prioritise these goals, aligning your spending and saving habits with your objectives.

3. Reflect: Take time at the end of the week to evaluate your progress. What worked? What needs adjustment? Use these insights to refine your plan moving forward.

What’s next?

With your financial plan in place, you’re well on your way to achieving your goals in 2025. But having a plan is just the beginning. Choosing the right savings and investment strategies is the next crucial step to maximise your financial growth.

In next week’s article, we will explore how to make the most of your income by allocating it effectively for saving and investing. You will learn about strategies tailored to your goals, risk tolerance and investment options like crypto, ETFs, stocks, bonds and high-yield savings accounts. 

Continue your financial learning journey 

In the meantime, you can deepen your knowledge of investment and saving strategies with this investment starter guide and other resources on the Bitpanda Academy focused on personal finance. 

Disclaimer

This article is distributed for informational purposes, and it is not to be construed as an offer or recommendation. It does not constitute and cannot replace investment advice.

Bitpanda does not make any representations or warranties as to the accuracy and completeness of any information contained herein. 

Investing carries risks. You could lose all the money you invest.