Financial Planning Basics

We all had so many dreams in our childhood. Now, when we look back, some of the dreams are fulfilled, but many are not. We have even compromised on our dreams as we realised that it is not going to happen. As we grow older, we keep compromising more or take loans to fulfill some of them. However, some people plan everything well in advance and achieve most of their dreams.

For some, it is only daydreaming, which means they do not write it down to specific goals with the specific time and date, etc. if a dream has to realise, it has to be converted into SMART (Specific, Measurable, Attainable, Relevant, Time Bound) Goals. Many people do not take this first and most important step in their journey of life, and that prevents them from achieving most of their goals comfortably.

To give an example, if one needs to create a corpus of Rs 25 lakhs for the daughter’s marriage, the planning has to start when she is a young child, not after she becomes a grown-up lady.

Four reasons why Financial Planning is important

1. To save some money to invest for the future:

Many people complain that they are left with no savings after meeting their expenses and monthly loan repayments. And this stops them from investing for their future needs. With proper planning of income, expenses, loans, taxation, insurance, assets, liabilities, cash flow, etc. one can easily find savings and increase it too. There are many ways we can create extra income and many ways we can reduce expenses and loans.

2. To have a good lifestyle and not compromise too much:

Why compromise on your dreams? Why not buy that car which you wish to buy? Why not construct that house which you dream of constructing? Why not we provide our kids with the education we dream of? Why not we go for that vacation with family once every year to the place we love to go to? Why not help a deserving person to make a change in their life with your timely financial support? All these are possible with proper planning. If we don’t do that, probably our life will end up paying off liabilities and never achieve a lifestyle that we dream of.

3. To have an emergency plan just in case something goes wrong:

Tough times in life like a pandemic or world war and the resultant economic recession, enlighten us about the importance of having some reserve money. Also, in case of an unforeseen event like an accident or critical illness, our biggest challenge will be arranging money to get treated in the best possible way. People with a proper financial plan can reduce this tension. A thump rule is that we need up to 6 months of living expenses as our emergency fund. Insurance planning also has a big role to play here.

4. To enjoy the retired life after years of hard work:

While planning for your retirement, your strategy may differ, since it is going to be a long term plan. You may have to take care of the safety of your capital rather than growth since your risk appetite will come down. Again, we need to plan for the effect of inflation in the economy, etc. So, if we don’t plan properly, in spite of achieving your family’s goals, you may still have a tough retired life.

How to make the plan?

There is a simple five-step personal financial plan which anybody can follow – even a non-finance background person. Let us see a brief outline of the same here:

1. Evaluate the current situation:

Many people do not write their own personal balance sheet or even keep a diary of income and expenses. It is the very reason why they don’t understand their actual current situation of financial position. Understanding our loan to income ratio, expense to income ratio, savings ratio, etc. will help us towards this. There are proven ways to do it, which anyone can master with some practice. In this module, we will learn all these and even more.

2. Write down your financial goals:

As mentioned earlier, we need to convert our dreams into SMART goals so that we can work towards achieving it with more clarity. When you do this step, it is always best to sit with family members and do it. There are simple charts using which we can prioritise our goals and not miss important ones, while we are trying to achieve many.

3. Identify the solutions to meet these goals:

Most people depend on loans to achieve their goals, which is not a safe scenario. We all know it’s a trap! But then that’s what people without the plan do. A better solution is investments. But most people are investing in traditional avenues, which is no longer considered as the best thing to do. There are newer options that we need to learn and try. We need to learn how to understand the risk-return profile of each investment.

The next important thing is to have adequate insurance cover for yourself, your family, and your valuable assets. Many people tend to ignore the importance of insurance and do not plan for it well in advance and thereby lose the benefit. So we need to learn which one to take and how. There are many policyholders who take the policy based on the advice of the agent and without proper understanding. They later realise they have made a mistake.

There are numerous investment options available to investors. In the mutual fund market alone, you can choose from nearly 2,000 schemes. Different investment avenues help investors to achieve different goals. For example, equity funds are suitable for long-term goals like retirement planning, children’s education, etc. Investing in these funds consistently over a longer period can help you achieve your dreams and goals.

4. Implement the plan without procrastination:

This step is very crucial since you are going to take action, deploy your money, or take some important steps. It is always better to have expert advice while doing this if you are not confident. But then you can’t fully depend on the advisor or agent also. You need to know basic things. You need to understand your risk appetite, age, financial health, family’s goals, and aspirations, etc.

5. Review the plan at regular intervals:

It is not enough that you plant a tree and then forget it. You need to nurture it with water and fertilizers. Just like that, a good plan, well-implemented can still fail without proper review mechanism. In this step, you need to review your plan at regular intervals and make necessary amends.


As we all know, failing to plan is planning to fail. But, when it comes to our personal money, we take it easy! And when the need arises, we struggle. If you agree, you need to learn financial planning without any delay, and if you read till now, you will most likely succeed in that journey.

If you want to learn how to make a simple financial plan for your family with the help of an expert in just 90 minutes, click here to send us an email.