Easy Step by Step Guide To Financial Planning

Easy Step by Step Guide To Financial Planning

Reading Time: 6 minutes

Financial planning is the planning of your finances in the right way with some judicious budgeting and investment thrown into the mix.

Easy in theory but very difficult to implement !!

Most of us ( about 90% or more ) do not have a clear picture of our income, spending and saving. Moreover, we do not have clear well defined financial goals.

We think we are financially wise but in truth, our spending habits are scattered and all over the place. We spend without a thought and attempt to save a small amount. Even when we do save we do not know how to maximise and grow our savings.

What we need is a proper financial guide and checklist to plan and optimise our finances.



Step by Step Guide to Financial Planning


#1. Know you monthly income

First, sit down and write out your monthly income and the sources. Your salary, interest income, rental income etc. Give a thorough appraisal of all sources of income and write it down. All investments in various assets like fixed deposits, mutual funds, life insurance, debt and equity investments, etc must be taken into account.


#2. Calculate your spending

Write out all your monthly expenses and add them up. This will give you a fair assessment of your spending and help you arrive at your savings amount. Take into account all small and big expenses like education costs, travel, medical etc.


#3. Write down your financial goals

Every person must be having some financial goals – Whether you are a salaried person, businessman or professional. Identify and write out your financial goals.


#4. Arrive at your current financial situation

Once the above three steps are done for a few months you will know :

  • your total earnings/ income
  • your expenses and spending pattern
  • your short and long term financial goals
  • your saving or surplus left over
  • lastly, what should be the savings you are aiming for to meet your financial objectives

Basically, you will arrive at your net worth by this exercise and know what avenues to expand on and where to cut down.


#5. Take into account future value and not just current value of your goals

When considering the cost of your long term goals always take into account the future costs of fulfilling those goals. For example, the cost of an MBA degree in a foreign university may be 40 lakhs today but in ten years, when your daughter is ready to pursue the same, it may cost 55 – 60 lakhs.

Knowing the estimated future value of your financial objectives is what you need to plan your steadily growing income and savings.


#6. Do a thorough risk analysis

While planning, it is of utmost importance to plan for unforeseen events or risks. Protect and insure yourself against risk. Take out various insurance policies against your life, health and other assets.

Take a pure protection plan like a term plan which gives you a higher coverage with lower premiums. It will give financial stability to your beneficiaries in case of your sudden and premature death.

Opt for health insurance with various critical illness coverage as well as partial disability and total disability coverage policies. Remember that disability and illness can drain your resources as rising medical costs are a reality.


#7. Be realistic of your risk appetite

Every person has a different capacity of taking risk. Most are conservative while some are aggressive risk takers and have a huge risk appetite. Some start off as moderates but with increasing knowledge, confidence and exposure grow to become aggressive. This is also an evolving process.

Based on your risk appetite study, consult and make investments.


#8. Earmark specific resources and assets towards fulfilling specific financial goals

This is also called as mapping of your assets. Know the worth of your assets and earmark each one towards your future specific financial goals. Basically, identify and mark each asset for each financial goal.

This will give you a clear picture of your financial standing and let you know the exact surplus fund that you need to work towards.


Last Thoughts

Financial planning is an important process for the mature and prudent person. It is an ongoing process which needs constant re evaluation and reassessment of your goals and priorities. Economic changes and personal life changes which are constantly occurring need to be closely watched and understood. Tweaking of your financial plans in view of the changes are very necessary. Timely action will also go a long way in maximizing returns and plugging loopholes in your financial agenda.

Keep writing and rewriting your personal financial journey with these tips and handy guide 🙂

Sima Gupta






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