The way to do a financial planning process


The way to do a financial planning process – Financial planning is nothing but it’s a step-by-step process or approach to meet our personal life goals. As we know, money is an important factor in our life and a financial plan acts as a guide as you go through your life’s journey. Additionally, it helps you to control your income, investments, and expenses such that you can manage your money according to your income and achieve your personal necessary goals.

In life, money is the key that helps you to achieve your goals and desires. And financial planning is the most important to fulfill all your needs at the right time. For example, if you want to buy a house so you have to do financial planning to get your house at the right time
of your life like how much you should spend in a month so you can save a particular amount of money after two to three years those money becomes enough to get a short time loan for a house.

So, now may be a question arising in your head about the importance of financial planning. We will discuss it in this article below. With the importance of financial planning, we will also discuss the benefits of financial planning and it”s strategies.

Financial planning is a holistic exercise to evaluate your current and future financial standing and thereby enabling you to achieve all your goals in a systematic manner.

As mentioned before, it creates a road-map and equips you to meet all your life’s expenses –both the expected and unexpected.

Financial planning includes budgeting your expenses, investing in right assets, setting SMART goals, selecting right asset allocation, creating a retirement plan and more.

You would wonder why you need a financial plan when you have enough savings.

If you are earning, your monthly income you can cover your expenses, and whatever you save you will invest for your future needs. Hopefully, you will have enough set aside to live the rest of your life maintaining a good lifestyle.

But we all know that inflation can be the biggest bug. It has the power to eat away the value of your hard-earned money.

Inflation is general rise in price of goods and services over a period.

Something that costs you Rs. 100 today, could cost you Rs. 110 tomorrow. Imagine what it

would cost you when you retire in so many years.

An example to bring out the point:

Current Monthly Household Expense: Rs. 30,000

Years to Retirement: 15

Inflation Rate: 8% p.a.

Future Household Expense (post retirement): Rs. 95,165 per month

And to fight inflation you need a prudent investment plan.

Financial Planning involves planning for your life goals such as your own retirement, your child’s

education and marriage, purchase of house, car, annual family vacations and any other goals.

While creating a financial plan your planner will first quantify all your goals. He/she will then asses your cash flows. And then the plan to allocate your funds towards these goals in a systematic manner so that they can be achieved.

After considering your personal financial requirements a Once a plan has been created by taking all your personal financial requirements into account, then you would begin investing towards the goals.

The recommendations for investments are the last piece to fit into the financial plan. These

recommendations may also include tax saving investments.

Before you start your financial planning journey with a financial planner you can learn some basics.

Defining financial planning process Goals:

The primary objective of financial planning is to help you achieve your financial goals.

Start by listing them down into short term (up to 2 years), medium term (from 2 to 5 years), and long term (above 5 years).

Make sure your financial goals are: Specific, Measurable, Adjustable, Realistic and Time Bound (S.M.A.R.T).

Start with a budget:

Budgeting is the process of creating a balanced formula on how to make optimal use of your hard-earned money.

Simply put, a budget is an itemized summary of the anticipated income and expenses for a given period, say a month. It will help you keep your expenses in check and keep you out of debt.

Although there are plenty of free budgeting software and apps available online, you could just start with a pen and paper or an MS-Excel sheet to get a hang of the exercise.

Keep a contingency reserve:

An essential component of a solid financial plan is creating an emergency fund (also called a contingency fund).

As you know, life is uncertain and emergencies such as loss of job, hospitalization of family member, loss of assets, etc. can occur at anytime.

Ideally a contingency fund is nothing, but 6 months of monthly living expenses saved. This includes everything from household expenses, to EMI payments, or any other expenses you may incur during a regular month.

Therefore, an intelligent approach would be to put away a portion of one’s savings to counter these exigencies if/when they arise.

Asset Allocation is the key:

Asset allocation is the foundation of financial planning.

A right mix of equity and debt will help you achieve your financial goals in the time horizon you planned. As you may have read in earlier articles, a common rule of thumb used to decide the proportion of equity in an asset allocation is 100 minus your age (100 – x years).

The rationale behind this rule is: the older you get, less time you have to recover if the stock market tumbles and your risk appetite recedes as well.

At the same time investing too less in equities could slow down your portfolio growth. Making it incapable to keep pace with inflation.

Although this isn’t the optimal approach to structure one’s asset allocation, it could be a good starting point for beginners in the investment arena.

Review your financial plan regularly

A regular review of financial plan increases the possibility of fulfilling goals.

This helps you to incorporate personal or economic changes if any.

It helps keep a check on whether these investments will help you in achieving the targeted goals.

For example, if you have invested in equities, then it would be prudent to check the current standing from time to time. It could be possible that a stock or equity mutual fund may be under performing.

Or in case of an equity mutual fund scheme, there could be a change in its investment objective or style, which no longer meets your purpose of investment.

Hence, review your plan regularly and weed out investments which no longer adds value to your portfolio.

Who Needs a Financial Plan?

For your convenience, we have made a list of scenarios where financial planning might come to your aid. These points will help you determine whether you need to create a financial plan for yourself or not. 

A financial plan is required if: 

  1. You don’t realize where and how your income is spent every month, then you definitely need to plan your finances better.

In today’s era of consumerism, many fail to understand how their monthly salaries get extinguished. Leaving them with very little or absolutely nothing to save.

Impulsive buying and lack of budgeting for expenses, leads to problems in the long run. with not having saved for taking care of children’s future needs or even one’s retirement.

Thus, not keeping track of your expenses and being carefree leads you to bid a goodbye to your long term financial goals, while you may achieve all the fancies of life in the short run. 

  1. When you have various liabilities and just don’t know how to get out of the debt trap, it’s time you put your personal finances in order.

In today’s world, each of us want a better lifestyle than what we presently enjoy; a lifestyle that gives us more comfort and advantages.

And at times to fulfill these we end up borrowing money and taking loans. But mind you these easy finance options can result into damaging your financial health.

A financial plan will not only help you to come out of this mess but will also enable you to manage your cash flows better. And to live a debt free life as far as possible. 

  1. If you don’t have road map of how to achieve your dreams, a financial plan can be your blue print to meet all your financial goals.

Financial Plan gives a shape and form to your goals.

It is for those who have unclear ideas or plans of how they would achieve their dreams and wishes in life. 

  1. If your investments are scattered and you are yourself unsure about where you have invested, then it’s high time for you to put your portfolio in order.

Many often indulge in investing in a haphazard manner without conducting a proper need-based analysis or undertaking sufficient research on financial products.

Managing these scattered investment gets difficult to manage / track. The investment portfolios of such investors are extremely strewn with duplicating schemes.

Also, at times there are investments which do not provide any advantage of diversification. Such investment portfolios need to be consolidated and re-aligned as per your financial needs. 

  1. You are not sure if you have made the right investments. Many people invest in the equity asset class through shares or mutual funds.

However more often than not, as mentioned earlier, such investments are done on recommendations from friends and relatives and without taking into consideration one’s financial goals and risk appetite.

At times these unplanned and non-researched investments result in loss of the investors’ money.

Hence it is extremely important that you invest only after considerable research has been undertaken on any investment proposition.

Constructing a financial plan will enable you or your financial planner to review your entire portfolio. And restructure the same if required to provide you with the best possible outcomes. 

  1. If you want to plan for financial goals such as buying your dream home, a car, a vacation abroad, child’s education and their marriage needs and your retirement among host of others; prudent financial planning can come to your recourse.

Through experience we can say that many vie for all the aforementioned goals, but do not have a plan to achieve them.

For many procrastination is their biggest enemy. So, it is imperative that a financial plan is made. And to make your dreams come true you also need to thoroughly follow the financial plan.

  1. If you don’t have a habit of investing systematically and regularly. You see, to create wealth in the long-term, regular investing is the key.

Even a child needs discipline and regular monitoring to achieve his goal of being a good student.

Hence, as a grown up individual you definitely need to invest regularly to meet your financial goals.

Investing small amounts regularly will also prove to be light on your wallet. Thereby enabling you to comfortably meet all your financial goals.

It might be difficult for you to determine the amount that you would need to invest regularly to meet all your goals. But a financial planner can help you plan your investments in right investment instruments to achieve your goals.

  1. If you have multiple life insurance policies and don’t know which policies to keep. Sometimes people land up taking multiple policies such as Endowment, Money Back, ULIPs, Pension Plans etc. due to the incomplete knowledge or mis-selling of products through agents.

Many a times, these policies do not solve the purpose of the insured and only result in filling the pockets of the agent who sold you that policy.

Some policies which promise you a life cover plus returns (market linked) may fail to do both. More often than not, these policies provide a very low cover and also low returns due to the number of charges involved.

A financial planner can help you understand which insurance policy suits you the best and which ones are best avoided. 

  1. If your portfolio is skewed towards any particular asset class. Most people consider equity as the best investment option especially during a stock market rally.

However, it is never wise to put all eggs in the same basket.

It is vital for you to understand that not all assets move in the same direction at the same time.

If equities are witnessing a bear market, it is unlikely that other asset classes such as gold, debt instruments and real estate will also be witnessing a down-turn at the same time or vice-versa.

Hence it is best to invest in more than one type of instrument to improve your chances of achieving your long-term goals with minimal turbulence.

However, you must understand asset allocation need not be the same for all individuals. Asset Allocation is a subjective concept which differs on the basis of his / her risk appetite and risk tolerance.

Hence a suitable asset allocation for you can be devised through a financial plan which acts as a shield to protect your wealth during uncertain economic conditions and market volatility.

Importance of financial planning?

If you have a question in your head about the importance of financial planning then you are at the right place to understand it better. Financial planning is the key to be prepaid for any situation. Let’s know a few important aspects of financial planning.

  • Tackle your inflation.

Financial planning is important to achieve your goals and desires but how? Have you ever heard from your parents or your grandparents that things were so cheap back then? If your answer is yes then you got it why financial planning is important. Inflation is nothing but the phenomenon of raising the prices of goods over years. Let’s understand it better by taking an example.

Assume that the price of rice is Rs. 10 per kg. And you have rupees 100. With this amount, you can buy 10 kg of rice for yourself. And after that, you have another 100 rupees that you keep in the bank that offers you an annual interest rate of 5%. So, at the end of the year, you have rupees 105 with you. But over one year, assume that the price of rice has increased to Rs. 11. It means that you have to pay 110 rupees for the same 10 kg rice. But you have only rupees 105 in your bank, you fall short of rupees 5.
This is how inflation mugs out one’s savings. It reduces your purchasing power over time, and you have to pay more for the same product you need. You can tackle inflation by investing in the avenues that offer you better return over time but for this, you have to make important financial planning.

  • Create your retirement corpus

As we know, day by day the medical field is becoming more advanced. That means the people are now going to live more in their retired lives. And this is undoubtedly a piece of good news. So, you can enjoy yourself more with your family, you can fulfill your passion and dreams can travel the world. But the question how will you fund all these expenses? So, you have to make financial planning.

  • Manage your money

Why should you manage your money? Because satisfying your family members is not so easy. Maybe your child wants to go camping this summer vacation or maybe your oldest daughter is ready to join college even though you may face emergency financial needs due to any reason. so, financial planning is important. You can keep your money in the bank to save it but in comparison to mutual funds, it’s not the better option.

  • For an emergency fund.

As we know, the future is so uncertain. Anything can happen at any time. Maybe you face a medical emergency in the future or maybe you lose your job. So, for this emergency uncertain situation you have to be prepared for the worst. Every time financial experts advise investors to keep an amount with you that equals a 6-month salary for emergency purposes. Even in this covid pandemic, many people have faced it.

Benefits of financial planning:

Increases your valuable savings.

Help you to live a better standard of life.

Preparing you for emergencies.

Help you to Attain peace of mind.

Wealth creation.

Make a better retirement planning

To give your child a better education option.

Saving tax.

To get all these benefits of financial planning first you have to get the right investment option for you and your family. To choose the better options go through all the steps I have written for you. Even, go through a financial advisor that will help you to find suitable investment options.

Financial Planning To Plan Your Retirement

When you are earning it’s easier for you to manage your expenses through your monthly salary, but have you ever thought who will pay for your expenses once you stop earning. The answer to that is your savings and investment done in your earning period.

Investment done now will help you to live comfortably during your golden years i.e. retirement. So, it becomes inevitable for you to plan for your retirement in advance.

But we have often-heard excuse from people for delaying retirement planning such as “I have enough time to go before I retire, so why rush?” Unfortunately, most of you fail to realise that postponing is your biggest enemy when it comes to retirement.

Same was the case with one of our client who delayed planning for retirement till he turned 50. He later realized that he doesn’t have much savings for his golden years

5 steps to create successful financial planning.

It is very crucial to make strategies that help you to create successful financial planning. As I already wrote above, that is why financial assistance is important. Let’s know about 5 strategies that help you to create successful financial planning.

  1. Determine your current financial assistance

Firstly, you should understand the status of your current finances such as your expenses, income, savings, debt, and investments. This will help you to improve your financial planning.

  1. Make a list of your financial goals.

Simply write down your financial goals. Such as I want to buy a car worth rupees 10 lakh in 16 months or I want to buy a luxury watch worth rupees 24 thousand in 2 months. Remember, don’t hesitate to write your goals because no goal is big and small.

  1. Wisely choose the investment options.

There are numerous investment options for you so choose wisely which investment will fulfill your dreams and desires. The mutual funds market alone had around 2000 schemes. Different investment avenues help the investors to reach their goals. For example, equity funds are perfect for long-term goals like child education.

  1. Make the right plan.

Select the right investment option based on the factors such as your dreams, age, appetite, and risk. If you are unsure about which fund investments are right for you, take a look at a financial advisor. These are certified professional financial advisors who help investors make investment options. They also help in insurance, retirement planning, taxation, and estate planning.

  1. Monitor your financial plan regularly.

Investing your money is not the end of your financial planning. You also have to monitor how the funds are performing on a regular basis. If they do not perform well then immediately replace them with better performing funds. You also have to follow your plan as you grow older day by day and your dreams and goals evolve.

Who is your financial planner?

Till now most investors used to focus purely on making investments into various instruments, like Mutual Funds, Insurance, Gold, etc. This was hardly ever backed by a thought on financial planning.

Now, however, a lot of them seek to create a financial plan which guides them on how much to save and helps them select the right investment instrument.

This is done after a detailed study of their existing investments, income, expenses and risk profile.

 Today, almost everyone in the financial services industry claims to do financial planning.

 In fact, major banks, brokers and distributors of financial products have opened departments or divisions which deal specifically with financial planning.

So, given the different type of players in the financial planning space a question which is bound to arise is – How should I select a financial planner? or how do I select a best financial planner?

The answer to this question is simple.

Check the capability of the individual or the organization that you wish to hire as your financial planner. Ask some few simple questions such as:

  • What is the business model of the company? How does it earn its revenues?
  • What is the process that they would follow in building the financial plan? Have a look at a sample plan.
  • What is the team size? Their experience and qualifications?
  • Are their recommendations based on solid research or driven by commissions?
  • How long has the individual or the organization been in business? How many clients have they made financial plans for?
  • Can they give references of existing clients with whom you can speak?

Do a detailed discussion with your prospective financial planner. Once you are satisfied on all these parameters, then go ahead and sign him up as your financial planner.

What all should a financial plan do for you?

A comprehensive financial plan should help you set the following things right:

  • Protection requirements and how to meet them
  • Emergency fund planning
  • Your goals (Retirement, asset purchase, children’s needs, etc) and the money that you would require to achieve them.
  • Detailed cash flows to help you understand the movement in your plan
  • View on your current investments
  • How should your investments be spread into various assets in line with your risk taking capacity
  • Investment Recommendations

What should be the cost of your plan?

There are various ways to pay for a financial plan (including in some cases where there is no charge).

Investors often tend to associate the cost that they are willing to pay for a plan with the amount that they are going to invest. That is not correct.

The price that you pay for getting your plan built is not just about the investment that you are going to make. You should look at the overall benefit that the exercise is going to bring to you in terms of how efficiently you would manage your personal finances with respect to all the points that have been mentioned above.

Word of caution:

Do not decide your financial planner purely based on who is going to charge you the least fees. Please understand there are no free lunches. And to build a financial plan which is comprehensive and considers all your requirements, a premium charge will have to be paid.

Also, while a CFP is a desirable qualification, the absence of it may not be the most appropriate reason to not select your planner. The approach and the expertise matter a lot.

Here are the 3 mistakes which you should clearly avoid while selecting your financial planner:

Not doing enough research:

What would you do if you were to get married? Will you marry the first lady/man who comes along? Or will you try to get to know him/her better?  

The answer is a no brainier… 

Of course, you would spend time with the individual to get to know him/her better. After all, it is your life’s happiness that is at stake and you wouldn’t like to tie the knot with an individual who doesn’t resonate with your views.


Now that’s exactly the kind of approach to follow while hiring a financial advisor!

It is weird that most individuals don’t have a set of questions to ask a financial advisor before associating with him/her. They prefer the “first come, first serve” approach when selecting a financial advisor.

But isn’t this approach completely absurd?

How can you just park your money with an individual you hardly know? 

But then you may argue, “The financial advisor was referred by a close friend and my friend will always have my best interest in his mind”.

Maybe yes. But while a referral is the first step to building trust, it is important that you evaluate the advisor on your parameters before signing up with him/her. Questioning the advisor’s approach is a smart investor’s way of taking precaution and treading cautiously.

But then, how would you evaluate the financial advisor?

By asking him/her a series of questions, like a job interview that matter to you.

The second mistake to avoid is…

Not knowing how the financial advisor will be compensated?

Financial advisors in India follow any of the three revenue models:

  • Pure commission model — Here the financial advisor is compensated based on the commission he/she earns from the financial products that you invest.
  • Pure fee-based model — Here the financial advisor is compensated by the fees you pay for his advice and avail his/her services. He doesn’t earn any commissions on the financial products you invest.
  • Fee + Commission model— The financial advisor is compensated by the fees you pay for his advice and avail his/her service + the commissions he/she earns on the financial products you invest.

Now that you know the three models, have you ever wondered how most financial advisors in India are compensated?

The most common model in India is the Pure Commission model. Most investors unknowingly prefer to associate with an advisor who follows this model. 

A naive investor believes that since he/she isn’t paying any money from his/her pocket, there is no downside to associate with advisors practicing the pure commission model.

Do you really think that there is no downside? Think again…

It is in an advisor’s best interest that you purchase/ invest in financial products that earn him/her more commissions; at the cost of your financial goals.

These type of advisors (misrepresent themselves as ‘advisors’; in fact they are nothing but agents) mostly recommend traditional insurance products for all your financial goals. After all, insurance companies do offer some handsome commissions. This vested interest leads to mis-selling.

Now that you are aware, would you associate with an advisor who keeps his best interest ahead of yours?

No, isn’t it?

So, ideally, you should approach a financial advisor or a financial planner or a CFG practicing on pure fee-based model. 

Since he charges professional fees (just as a doctor, chartered accountant, architect and lawyer etc.) for his/her services.

In most likely case he would put your interest at fore and handle your money with as much care as he would while managing his own money. Therefore, there are reduced chances of mis-selling. 

Always consult a SEBI Registered Investment Advisor (RIA) who are subject to audit, legal compliance, and ethical code of conduct. If they are found in contravention of the provisions laid down by SEBI, they can even lose their licence to practice (just like any other professional).  You can find a list of these RIAs here.

The third and the last mistake to avoid is…

Associating with a relative or a close friend as your financial advisor:

Yes, we recognize how controversial this statement sounds. 

Like most individuals, you trust that a relative or a close friend would be the best person to act as a fiduciary. 

After all, you know him/her since a long time and he/she wouldn’t take you for a ride.

But, that is exactly the problem while associating with a close friend or a relative! 

You let your “smart investor” guard down and that is detrimental to a healthy professional relationship and your financial well being.

When you work with a close friend or a relative, you tend to make decisions based on emotions rather than rationale. You trust blindly and don’t do the much needed due diligence before signing up with them.

Ask your childhood friend for his business history, experience and credentials etc. and he/she may take offence; fail to ask a full set of questions and you remain unsure you have the right expert. 

There is more than money at stake when you do business with friends and family. If the decisions taken by the friend or the relative do not bear the kind of results you had hoped for, you will end up losing a close relationship too. 

If you still want to go ahead with the relationship, make sure to factor in the extra value of your friendship into your decision making. Remember, you’ll lose a lot more than just money if a relationship with a friend or relative turns sour.

There is a lot more to traditional financial planning. Hence, choose a financial planner or a Certified Financial Guardian wisely.

The one who will not only chalk out a well-rounded personal financial plan, but patiently listen to what matters to you and handhold you to achieve your financial goals.


As we know, Benjamin Franklin has said that “if you fail to plan, you are planning to fail.” You may have different kinds of financial goals and you are wishing to achieve them but to reach them at the right point in your life you should make a financial plan first. Looking for financial assistance from the federal government. Read along the article to get all the information you need.

Frequently Asked Questions:

1[sc_fs_multi_faq headline-0=”p” question-0=”  How Do I Choose a Financial Advisor?” answer-0=”An excellent choice for a young adult is a fee-only financial planner. Unlike a commission-based advisor, who earns a commission if they sign you up with their company’s investment plans, a fee-only planner has no personal incentive beyond your best interest, so they have no reason not to give you unbiased advice. ” image-0=”361″ headline-1=”p” question-1=”Why Is Compound Interest So Powerful?” answer-1=” Compound interest is one of the most powerful forces in finance because it grows your money exponentially, which means it can super-charge your savings, especially over time. The magic of compound interest for your retirement account is that it is interest on interest—literally. You earn interest not only on the principal (the money you put in), but also on the interest (the money the bank pays you for holding your principal). ” image-1=”362″ headline-2=”p” question-2=”Why Did My Pay check Shrink After My Raise?” answer-2=”The higher your salary, the higher your tax rate. If you just got a raise or took a new job at a higher salary, the change in the marginal tax rate on the additional income will definitely affect your pay check. For example, if a salary increase of $6,000 per year bumps you up into a higher tax bracket, the percentage of your income that goes to taxes bumps up as well—which will make your pay check smaller than expected. If you’re considering a move to a more expensive area to accept a higher salary, keep that in mind. ” image-2=”363″ count=”3″ html=”true” css_class=””]