Financial Planning for Beginners

(Last Updated On: September 5, 2016)

Financial Planning

Financial planning is an ongoing process and set of actions which enables you to take structured and sensible decisions to help you meet not just your financial obligations and goals but help you deploy your money to achieve your life goals .

Financial Planning is not :

  • A one time product you buy from market which can help you achieve everything
  • Is not one time investments or regular investments you make to grow your money
  • Is not about buying products like pension planner or structured Retirement income planner

All these are just parts of a financial plan, but financial planning is a continuous exercise which ensures you make right financial decisions at different moments in your life.

What is the Purpose of Financial Plan

Main purpose of Financial planning is to help an individual or a family to align their finances to their lifestyle requirements, A good financial plan helps individual baseline their finances and sets up a path of financial management so that individual lifestyle goals can be achieved, A good financial plan builds predicts and forecasts your future financial requirements to meet your lifetyle goals  and suggests an actionable plan to achieve them.

Benefits of Financial Planning  

  1. Increased probability or possibility of financial security as you have more visibility into impact of financial decisions
  2. Gives a holistic view of your financial decisions and they impact your goals, which in turn helps you make right decisions
  3. Aligns your Financial decisions to long term and short term goals, ensuring you do not miss on any of them
  4.  It helps you make course correction in changing environment like economy or your personal financial position etc.
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Key components of a good financial plan

  1. Financial Statement analysis and cash flow analysis/budgeting
  2. Investment planning including which assets to invest in, and optimal portfolio design
  3. Tax Planning , ensuring you are managing your taxes well
  4.  Risk Management to ensure your have back up plans when things do not go as per plan
  5. Retirement Planning for a secure and comfortable retirement life
  6. Estate Planning (optional)

  Financial Planning process


                                                                  Financial Planning Process 

Financial Planning process

As shown above Financial planning process is broadly consists of 4 Components

  1. Discovery phase
  2. Planning phase
  3. Marrying planning with goals
  4. Recommendations

How to create a financial plan detailed steps

  1. Review your income, assets and liabilities,where the money comes where it goes
  2. If you are married do this exercise jointly with your partner
  3. Check if you have emergency fund in place , if no get one in place right now
  4. Check if you have adequate insurance if not get properly insured
  5. Do you have retirment plan ready, if not work on it
  6. List down your Lifestyle/other goals like ( travel, marriage, kids education etc)
  7. Create financial plan to meet financial obligations for each of these goals
  8. Keep reviewing your goals and plans

Frequently asked questions on Financial Planning 

  • I am still young , should i start thinking about financial planning  ?

Yes you must, its never early to start your financial planning, earlier you start you better it is, infact early start to financial planning gives you a head start and lets you reach your goals faster and with lesser investments it also inculcates early discipline which keeps you in good stead all your life

  • When should i start retirement planning ?
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As early as possible, its a misnomer that you should start retirement planning closer to retirement in fact is the worst idea, early start to retirement planning helps achiever your retirement nest faster and more efficiently for more on this read my post on 10 tips to boost retirement saving

  • Should i hire a financial planner to create my plan ?

It is always good to get some professional advise to plan your future, if you donot have adequate time resources for research and cannot follow up on the discipline, Individual financial planners can be costly alternatively you can use online financial planners which are much more economical

  • Do I need to review my financial plan regularly ?

Absolutely all financial planning needs to be reviewed periodically

  • As a women how should i do my financial planning ?

Yes absolutely, please read my post on Financial planning tips for women


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