Financial planning is the process of developing a personal roadmap for your financial well being. The inputs to the financial planning process are:
1. your finances,i.e., your income, assets, and liabilities,
2. your goals, i.e., your current and future financial needs,
3. your appetite for risk.

The output of the financial planning process is a personal financial plan that tells you how to use your money to achieve your goals, keeping in mind inflation, real returns, and taxes. In short, financial planning is the process of systematically planning your finances towards achieving your short-term and long-term life goals.


Here’s a list of the benefits that a well chalked out financial plan can bring about :

  • Helps monitor cash flows and reduces unnecessary expenditures.
  • Enables maintenance of an optimum balance between income and expenses.
  • Helps boost savings and create wealth.
  • Helps reduces tax liability.
  • Maximizes returns from investments.
  • Creates wealth and ensures better wealth management to achieve life goals.
  • Financially secures retirement life.
  • Reviews insurances needs and therefore also ensures that dependents are financially secure in the unfortunate event of death or disability.
  • Lastly, it also ensures that a will is made.

The output of the financial planning process is a personal financial plan that tells you how to use your money to achieve your goals, keeping in mind inflation, real returns, and taxes. In short, financial planning is the process of systematically planning your finances towards achieving your short-term and long-term life goals.

Most people nurture dreams of owning a bigger house or car, exploring the world, giving their children the best possible education, a blissful retirement, etc. Basically, these dreams are life goals. Consider this example :
Mr. and Mrs. Shah, 34 and 32 respectively, have a three year old son. Both work in private sector companies. Mr. Shah plans to retire when he’s 55. From their current one bedroom rented suburban Mumbai apartment, the Shahs hope to move to their own two bedroom apartment costing around Rs 45 lakh within the next five years. They own a small car, for which they have availed of a loan. Mr. Shah reckons that he will need Rs 15 lakh for his son’s higher education 15 years later. He also wants to build a corpus of Rs 75 lakh for his retirement.
While distinguishing short term goals from long term goals, you must keep in mind that, as a general rule, any life goal that needs to be met within five years can be considered as short term. Beyond that, any other goal can be classified as long term. By this classification, the Shahs’ goals can be classified as follows :

» Short Term Goals » Long Term Goals
2BHK apartment Son's higher Education, Retirement Corps
Using a similar yardstick, you may classify your own life goals. Each of them needs financing. How you plan your finances, to have the right amount at your disposal at the right time, is what financial planning is about.

Importance of financial planning
Can you manage without financial planning? Many people do, but they may find—often when it’s too late—that they don’t have the means to achieve their life goals.

Hopefully, you’re now convinced that you definitely need a piece of the action. What next? When you actually get right down to it, financial planning consists of a series of steps. This section examines each of these steps in detail.
Step 1 : Identify your current financial situation
Sit down with all the earning members of your family and gather all information about your sources of income, debts, assets, liabilities, etc. This gives you a picture of your current financial situation.
Step 2 : Identify your goals
Ask each member to list what they think are current and future family goals. Prioritize each goal by establishing consensus and put a time period against each, i.e., when will you need the finances to achieve that goal. If possible, quantify each goal. This exercise enables recognition of short term and long term goals, and how much money you need for each.
Step 3 : Identify financial gaps
Once you know where you stand financially, and where you want to be, i.e., how much you have or can expect regular sources of income to generate, and how much you need to fulfill various goals.
A simple calculation gives you an idea of the shortfall. This is important, because, identifying the right investments to cover the shortfall depends on you quantifying the income from your investments.
Step 4 : Prepare your personal financial plan
Now review various investment options such as stocks, mutual funds, debt instruments such as PPF, bonds, fixed deposits, gilt funds, etc. and identify which instrument(s) or a combination thereof best suits your needs. The time frame for your investment must correspond with the time period for your goals.
Step 5 : Implement your financial plan
It’s now time to put things into action. Gather necessary documents, open necessary bank, demat, trading accounts, liaise with brokers and get started. Most importantly, start investing and stick to your plan.
Step 6 : Periodically review your plan
Financial planning is not a one-time activity. A successful plan needs serious commitment and periodical review (once in six months, or at a major event such as birth, death, inheritance). You should be prepared to make minor or major revisions to your current financial situation, goals and investment time frame based on a review of the performance of your investments.

Life Insurance is a contract between you and a life insurance company, which provides your beneficiary with a pre-determined amount in case of your death during the contract term.
Buying insurance is extremely useful if you are the principal earning member in the family. In case of your unfortunate premature demise, your family can remain financially secure because of the life insurance policy that you have purchased.
The primary purpose of life insurance is therefore protection of the family in the event of death. Today, insurance is also seen as a tool to plan effectively for your future years, your retirement, and for your children's future needs. Today, the market offers insurance plans that not just cover your life and but at the same time grow your wealth too.

Term Insurance, also known as pure life cover, is the cheapest and the simplest form of insurance. Under this insurance policy, against payment of regular premium, the insurer agrees to pay your beneficiaries the sum assured in event of your premature death. However, if you survive till the end of the policy term, nothing is payable to you. This policy has no savings component and the premiums you pay are purely a cost to buy you life cover. This is suitable for you if You are looking for a low cost life cover without any savings benefits attached.
*You are at that stage in life where insurance cover is vital but you cannot afford high premium payment due to low income.