How to Start Your Financial Planning

The Importance and Urgency of Financial Planning.

Financial planning is the much talked about topic these days. Everything is calculated in terms of money. Every minute wasted is literally a lot of rupees wasted indeed.  The more you delay your financial planning activities, the more you will lose money. The more you lose money the more you will spend to earn it.  Hence the importance and urgency of financial planning.  The following are the few steps essential for making up a good financial plan.

Step 1 – Put your finances in order


We live all our lives working to earn money.  We hardly spend time for our financial planning. Only then will be enlightened about how to put that hard-earned money to work more effectively. So, how do you plan your financial life?  Financial planning starts with a review of your total income and expenditure, which is known as your overall financial profile. Before rushing to build an investment portfolio, you need to address the following issues: Insure your health, life and assets that are under your control now. Start by protecting your family’s current lifestyle against events/ expenses beyond your control. Buy necessary insurance policies for your medical expenses, life, car, and other important assets.

Financial Planning will make your life more and more comfortable as days go by. You will be a relaxed person once you do that meticulously.

Calculate How Much Insurance You Actually Require

The next important part of financial planning is to repay high-cost loans.  Paying credit card bills on time can save you more money in interest costs than most of your investments could earn you. The same is true for borrowings that cost you more than 15% pa. So, stay clear from all high-cost loans, and only then can you really start building your investment portfolio.

Keeping aside money for emergencies is perhaps the second most important part of financial planning. Deposit some money in short-term investments that can be encashed on demand to help you tide over unforeseen needs and emergencies. It is advisable to keep 6-9 months of your actual monthly expenses as emergency funds.

Draw up a savings plan.  Income – Expenditure = Savings Do not leave this equation to chance – make a savings plan. Put away as much as you can, as regularly as you can, aim to save at least 15% of your take home annual income.

Step 2: Prepare to invest

Investment planning is simpler than you think, and more rewarding than you would imagine. Your age and investment size does not matter, nor do you have do be a money whiz – just do it NOW. So where do you start?

Identify Your Financial Goals

What are your goals? What are you saving for – A house? Child’s education/ marriage? New car? World tour? Retirement? Quantify this in terms of amount of money needed, and time horizons. To understand the process of defining and quantifying your future goals, use our Retirement Planner . Even if you do not have retirement planning as one of your financial goals, this planning tool should help you understand the process of financial goal planning. Understand your risk profile Depending on our income and needs, we all have different capacity for risk. We also have a different risk tolerance, based on our individual psychological make-up. Understand your risk profile and plan your portfolio accordingly.

Find out: Your Risk Profile

Plan your asset allocation Returns should not be your primary objective; you could end up taking more risk than you are financially/ psychologically capable of. It helps seek expert advice and create a portfolio with the right spread across asset classes to minimise risk of incurring a loss.

Calculate Your Asset Allocation

Step 3: Start Investing Now

The only thing worse than investing late is not investing at all. Use the power of compounding Compounding is the best reason for starting early. The sooner you begin investing the better – every day that you are invested is a day that your money is working for you.

Checkout How the Power of Compounding Works

Invest as per your needs If you know you will need cash next year (down payment for a house, child’s college fee etc), opt for a shorter term, low capital risk investment (such as liquid/ gilt/ money market funds, bank term deposits or top-rated company deposits/ fixed income investment options). Similarly, invest money that you will not need for 3-5 years in the stock market. Evaluate your investing skills Finding the right money manager for your investments is important. You could manage your money yourself, use professional money managers, or invest through mutual funds. Financial planning is not about financial expertise and hard work. All it needs is the right approach and discipline. Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.


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