Financial Planning

What is Financial Planning?

Financial Planning is a process of clearly understanding your future financial requirements and making provisions for it accordingly. It doesn’t start and end in a specified time frame, hence it won’t be wrong to say that it is an ongoing process.

It is the process of knowing your current financial standing, understanding where you want to reach by charting out away, and taking appropriate steps to attain your goal.

But like any other plan, a financial plan also needs to be reviewed from time to time to understand whether you are off track and taking corrective measures for the same.

You work hard to earn money so that you can save for your and your family’s forthcoming requirements, but only saving isn’t enough. Investing the saved money into appropriate and suitable investment options is the key to securing your financial future. Different individuals have different requirements depending upon their income, expenses, and risk appetite.

A person at the onset of his career can take more risk than the one who has more responsibilities. Different investment options catering to the varied needs of people are readily available in the market.

Investment options, including stocks, equity, debt, serve diverse requirements such as accessible liquidity, regular income, cash flow, as well as an increase in capital.

A holistic financial plan takes care of your short term as well as long term financial requirements. It also helps in inculcating the golden habit of saving along with determining whether you need a particular asset or not.

As Warren Buffet rightly said about Spending and Savings,” If you buy things you do not need, soon you will have to sell things you need,” and,” Do not save what is left after spending, but spend what is left after saving.”


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Let’s understand in detail what is Financial Planning all about, and how can it benefit us?

In layman’s language, Financial planning is an ongoing process of continuously evaluating your financial position and keep investing accordingly, keeping your goals or objectives in mind.

Sounds easy, isn’t it? Each one has different life goals to be achieved at different stages of life. Let’s understand how to formulate goals and the steps in attaining them.

Financial Planning Process

It starts with establishing your goals, be it short term, medium, or long term.

  • Do you want to be a millionaire before you turn 40?
  • Do you want to keep a buffer for harder times in life?
  • Do you want to pre-plan for all your future expenses like marriage, child’s education, retirement, et al.?

The answer lies in getting an objective and sound Financial Plan in place for yourself.

Where do you stand?

The next step involves correctly evaluating your assets and liabilities, what you own right now? and what you plan to own in the future?

This gives a clear picture of your net worth, and your current financial position vis-à-vis your objectives. It provides you with an idea of how far you are from your goal and what should be your run rate to achieve the desired objective.

In other words, it helps in determining the expected rate of return in the required number of years needed for attaining the financial goal set by you is.

How to Create a Sound Financial Plan 

The third step in creating a sound financial plan is to develop a road map for your objectives.

The essence of creating a financial plan is to take into consideration the short, medium, and long term objectives. Investment is made accordingly, in options that do not hamper liquidity for the short and medium-term whereas, for long term investmentLong Term InvestmentLong Term Investments are financial instruments such as stocks, bonds, cash, or real estate assets that a company intends to hold for more than 365 days in order to maximize profits and are reported on the asset side of the balance sheet under the heading non-current more, options are chosen to keep the long term perspective in mind, which usher an increase in your invested capital.

Financial Plan – How far have you reached?

It makes for a good financial plan if reviewed from time to time after implementation. Implementation is the key to achieving goals but along with it, what holds more importance is to keep reviewing the plan from time to time. Financial planning is not static; it is an ongoing process that requires monitoring and reviewing financial decisions at the very least, yearly. As they say, if you don’t control your finances, they will control you.

Financial planning is all about being clutter-free and organized. It involves segregating your goals into short, medium, and long term and making provisions for them, keeping the cost of inflation in mind along with provision for any untoward incident that might occur in the future. It provides you with a sense of security and confidence in dealing with whatever the future has in store for you with more ease and lessen anxiety.

Benefits of Financial Planning

Financial Planning is a very beneficial practice. Without sound financial planning, you can miss out on important life goals. It provides you with a roadmap to achieve your financial goals and reduces uncertainty about the future by managing your moneyManaging Your MoneyMoney management refers to the proper use of money, which includes creating a budget, understanding cash expenses and incomes, tracking the money spent, saving some income for investment and future use, eliminating unnecessary expenses, and keeping track of all items to understand cash spending and more to achieve personal monetary satisfaction. A holistic financial plan can increase your quality of life, along with providing you with the following benefits.

Importance of Financial Planning

There is a myth that financial planning is for people who have surplus money. A well-planned and holistic financial planning process can benefit one and all. It provides provision for savings, investments, planning for education, major purchases, retirement, insurance, and other financial needs.

According to, Only 31% of financial decision-makers in families say they have created a comprehensive financial plan either on their own or with professional help. It also states that 35% of people have a plan to save for emergencies, and only two-thirds have a plan to meet any of the six savings goals, such as emergencies, retirement, a child’s education, or a down paymentDown PaymentDown payment is the initial deposit made by the buyer to the seller when purchasing an expensive item, such as residential property or a car. It comprises a portion of the total purchase amount of the asset and takes place via cash, bank check, credit card, or online banking. read more on a house.

Financial plans are meant for people from all walks of life, irrespective of their earning level. Most people opine that financial plans are for the older ones. This is a complete myth. If you keep investing at an early age, you will be better off in achieving your life goals than many of your peers. In fact, most millionaires and billionaires are the ones who got hooked to financial planning at an early age and kept track of their financial decisions.

One of the biggest mistakes made is not to invest early. Investing at the onset of your career provides large scopes for any gaps that might occur in the future. It also helps in determining your spending habits. By making simple changes in your lifestyle and keeping away from high-rate loan debt, for example, credit cards, you can increase your saving rate manifold.

The easiest mantra to conjure up your savings is to save first and spend later.

Financial planning and Analysis

A healthy financial plan is one that suits the requirements of a particular individual considering his/her monetary standing at that particular time. For example, a financial plan for a person in his 20s would be completely different from the one in his 40s.

Early 20s Financial Planning

Just at the onset of your career, your financial plan would incorporate long term savings primarily into retirement funds or increasing your contribution to the 401(k) plans. It’s more important for you to comprehend the importance of saving and spending wisely. It is also essential to have ample liquidity by maintaining at least 6 month’s salary in a fund for any unwarranted situation.

Mid 30s Financial Planning

If you are in your 30s, it is essential that you buy life insurance to safeguard the future cash flowsCash FlowsCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more of your family. Investment options that provide liquidity in times of a crisis along with financing of future needs are the need of the hour. Spending habits need to be revisited with ample attention to be paid on buying assets that drain you of your future savings. An expensive car or house to impress the neighbors is a better idea only when it doesn’t burn a hole in your pocket.

Late 40s Financial Planning

In the late 40s, your kids must be ready for a college education. This is the right time to start thinking about your retirement and post-retirement care plans as well, along with your kids’ education funding. A medical condition might further put pressure on your savings. Hence having a contingency fund is a good idea.

Early 50s Financial Planning

This is the time to lap up and bask in the glory of all the hard work you put in all those years. If you haven’t saved anything for retirement until now, this is the time to gear up and mobilize all your savings towards your retirement planning.

Experts claim that the amount of equity exposure you can have in your early 20s or even mid-30s is much higher than what you can have in your 50s. Hence, it is time to play safe now and orient your savings towards debt instrumentsDebt InstrumentsDebt instruments provide finance for the company's growth, investments, and future planning and agree to repay the same within the stipulated time. Long-term instruments include debentures, bonds, GDRs from foreign investors. Short-term instruments include working capital loans, short-term more rather than equity.

Related Articles: Certified Financial PlannerCertified Financial PlannerThe CFP credential is the most desired and respected global certification to demonstrate commitment to competent and ethical financial planning practice. An aspirant must pass a rigorous exam that assesses competency and adheres to a code of ethics, pledging to provide financial planning in clients' more


As Antoine de Saint-Exupery has said, “A goal without a plan is just a wish.” A detailed financial plan helps in establishing your priorities right, saving with an objective, and investing with a future road-map in mind leading to success; like everything else in life, planning beforehand and regular monitoring and reviewing leads to greater financial freedom.

“People often confuse financial planning with investing, but financial planning is much broader than that,” said Noel Maye. Financial planning is a holistic and all-encompassing approach towards the financial organization, which involves keeping track of spending, expenses, budgeting, risk toleranceRisk ToleranceRisk tolerance is the investors' potential and willingness to bear the uncertainties associated with their investment portfolios. It is influenced by multiple individual constraints like the investor's age, income, investment objective, responsibilities and financial more, as well as retirement planning.

As has been rightly saying, “Life is inherently risky. There is only one big risk you should avoid at all costs, and that is the risk of doing nothing”, so don’t sit still by doing nothing. Secure your financial future by making a financial plan if you haven’t already done so.

Reader Interactions


  1. Harrison Denisov says

    Very useful material. This article was really helpful to brush up the financial planning skills. Many thanks. Could you tell me some financial job interview tips? I mean how to crack a job interview?

    • Dheeraj Vaidya says

      Thank you so much. For cracking a job interview, first if you are a fresher you need to understand that you will get your first break only if you are quiet and confident. Also try to keep yourself updated with the latest news and current affairs, try reading newspaper daily. Also you need to keep an update of industry trends i.e what exactly industry expects from you. Spent some time to prepare or Resume or cover letter and the last but not the least try to do mock interviews with friends and relatives. Good luck for your upcoming future

  2. Jace Werlin says

    Thanks for making me understand in detail about the financial planning. This has really helped to learn what financial planning is all about. Great Work!!

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