6 Easy Steps of Financial Planning in India

A financial plan is a sequential procedure for assessing a person’s present monetary status. It helps one achieve a targeted short-term or long-term goal in the future. The plan uses variables to foresee asset values, future income, and withdrawal plans.

Preparing a financial plan is essential since it enables you to utilise your assets properly and boosts your confidence to tackle any problems. To learn more, keep reading.

Financial planning is a holistic strategy that helps you achieve your monetary or personal goal by accurately determining your prevailing and future financial status. Thus, it enables you to accomplish your goals systematically. Financial planning involves planning expenses, investing in profitable assets, choosing the correct asset allocation, making a retirement plan, and so on.

As stated earlier, it is a road map that assists you in dealing efficiently with your day-to-day expenses and anticipated future expenditures. However, before you make a monetary plan, hire a professional financial planner who can guide you to ensure the flawlessness of your funding strategy.

On March 15, 1950, the Planning Commission was founded after India's independence under the Chairmanship of the then Prime Minister Jawaharlal Nehru. Subsequently, in 2015, the Planning Commission was replaced by NITI Aayog, which is chaired by Prime Minister Narendra Modi.

Among the various functions performed by this establishment, the primary one is to evaluate India’s economic condition and accordingly formulate financial planning for the country based on different goals for the overall development of the nation.

There are eight components of good financial planning, as stated below:

• Financial goals
• Budget planning and cash flow planning
• Net-worth statement
• Retirement plan
• Insurance coverage
• Estate plan
• Emergency funds
• Debt management plan

Step 1: Determine Your Financial Position

Step 2: Determine Risk Profile

Step 3: Set Financial Goals

‍After determining your risk profile and checking your financial situation, you can begin setting your investment goals. However, before choosing the type of goal, be specific, realistic, and honest with your decision. Depending upon the nature of the goal, it can be divided into three categories, as shown below:

• Short-Term Goals: In this type of plan, goals are achieved by an individual within a short time. Usually, short-term plans range between 6 months and 5 years. This type of goal comprises forming a monthly budget, paying off credit card dues, creating an emergency fund, etc.
• ‍Medium-Term Goals: Secondly, medium-term goals refer to those that comprise investments in purchasing a new car, forming an investment portfolio, saving for marriage, etc. In general, the tenure for medium-term goals ranges between 5 years and 10 years.
• ‍Long-Term Goals: Thirdly, long-term goals refer to those goals that require a long time for an individual to achieve. For example, owning a house, saving for a retirement fund, etc. The time limit for long-term goals is beyond 10 years.

Step 4: Keep an Emergency Fund

Having a financial plan is an ideal way to meet your future goals. However, this journey from making the plan to achieving the goal is not very simple since you have to face various challenges during the course.

You can save some money as a contingency for this. If your car breaks down, you lose your job, or you experience a medical crisis, you can use this emergency fund to counter the situation instead of panicking.

While making your financial plan, reserving 6 to 12 months’ expenses in your emergency fund is sensible. This reserve will give you sufficient time to recover your monetary status after it collapses.

‍Step 5: Implement Your Financial Plan

‍Executing your plan is the second last step of your financial planning. Forming and implementing a well-ordered plan can seem to be challenging. For this, taking assistance from a certified financial planner is recommended. Remember that immense attentiveness is required while you execute your financial plan. It will require your utmost dedication to carry out the planned actions. 

Furthermore, remember that any delay in implementing your plan will move your targeted goal further away. Hence, you should stick to your schedule and consult your financial advisor whenever necessary.

Step 6: Review and Revise

‍The concluding step for a financial plan is the analysis and review of the plan. Remember that while planning is rather easy, executing plans seamlessly and keeping them relevant is fairly challenging. You need to review your plan and evaluate its success occasionally after its implementation.

It is essential to note that the socioeconomic world is continually changing. Thus, make the required changes whenever you figure out any discrepancy in your financial plan due to the global economy. In addition, become self-dependent and avoid trusting your financial planner too much, as they are also humans and can make mistakes. Hence, you should review your plan regularly and modify it whenever required.

Pay Yourself First

Fundamentally, when it comes to personal finance, it is often recommended to ‘pay yourself first. ’ This implies that some part of the person's income must be saved before paying for the expenditure.

When just starting the job, one may be advised to save between 10% and 35% of the take-home pay, with the upper end of the scale reached when income rises and there are more demands on it.

The Rule of 50-30-20

A basic rule of thumb in personal finance is the 50-30-20 budget, which segments your income into three categories:

• The remaining 50 percent of income relative to rent, utilities, and food, for instance, must be purchased. This means one can still maintain one's way of life after retirement.
• Twenty-five per cent goes to want (non-necessities), and 5 per cent goes to the savings account.
• Twenty per cent for investing and saving money.

Fund for Emergencies

Life Assurance

Retirement Strategy

Debt Control

Investment Plan

Reaching Financial Objectives

Being Ready for Emergencies

Enhanced Comprehension of Finance

Higher Quality of Life

Early Retirement

Financial Planning is a process of formulating objectives, programmes, and budgets regarding the investments of an individual in order to achieve a future monetary goal. Mentioned below is the importance of financial planning in India:

• Financial planning maintains a proper balance between the inflow and outflow of funds to retain monetary stability. 
• A sound financial plan lessens risks and uncertainties regarding market fluctuations.
• Financial planning ensures the adequate use of financial resources to get the best returns on investment.
• Financial planning enables an individual to be prepared to face emergencies.
• A well-organized financial plan helps choose the right instruments for insurance coverage and investment. 
• Financial planning also promotes better tax planning and compliance while saving money.

Now that you understand financial planning in India, you can set your goals and make your plan efficient. However, remember that maintaining a monetary plan can be hectic if you take the entire responsibility on yourself. For this, you can hire a specialised financial planner or advisor to take expert assistance from them.