Steps in Financial Planning Process

Plan your finances like a Pro

With no planning, nothing works and it also holds true in case of managing your finances.

Financial planning helps you identify the short and long-term financial goals in life and create a balanced financial plan that helps achieve those goals. A financial plan creates a timeline that you need to follow to achieve your goals. It helps to manage your money in a way you reach your financial goals on time and fulfil your desires in life.

Also Read: Golden Rules of Financial Planning You Must Follow

10 Steps to Create a Successful Financial Plan

Financial Planning consists of 10 steps that help you to build a successful financial plan.

  1. Define your financial goals and objectives
  2. Analyzing the financial situation
  3. Pay your debt
  4. Start investing to meet the goals
  5. Create an emergency fund
  6. Get your family insured
  7. Estate planning
  8. Plan for taxes
  9. Plan for retirement
  10. Review the financial plan regularly

Let’s go further into details step-by-step as explained below.

Step 1: Define your financial goals and objectives

Having financial goals and objectives is a foundation for creating a sound financial plan. It provides a proper roadmap to your financial success.

Some of the major financial goals include children’s education & marriage, buying a home/ car, going on a dream vacation, saving for retirement, etc. When it comes to setting goals, you need to make your goals well-defined and prioritized.

Also, you should also review the goals periodically to make sure they are in sync towards meeting the changing financial needs.

Read This: Thumb Rules for Financial Planning

Step 2: Analyzing the financial situation

The success of the financial planning depends on collecting all the information related to your finances. It includes your income and expenses, assets and liabilities, etc. Assessing your financial standing helps to understand your current financial profile.

Your attitude towards taking risk is also required to analyze, as it helps identify the right asset class for investing.

Step 3: Pay your debt

While creating a financial plan, you must include a plan that helps you get out of debt (if you have, any). If you are already carrying a huge load of debt, it’s really difficult to start investing for a secured financial future.

With high interest rate and huge monthly payments, having lots of debt is a major constraint to fulfil your financial goals. Thus, it’s always better to create a debt pay-off strategy and pay all your debts as early as possible.

Step 4: Start investing to meet the goals

If you are seeking to build wealth, then you need to put your savings into investment. As you have defined your financial goals, it’s the right time to begin allocating your investments in different asset classes as per your risk tolerance.

Investing for a long-term will take advantage of the power of compounding that will further help fulfil your major financial goals such as children’s higher education, his/her marriage, retirement planning, etc. You must pick the top investment options that help you obtain high returns.

When it comes to disciplined investing, you must also avoid over-spending and stick to a budget. It helps you make savings that you can invest towards pre-determined financial goals.

Also Read: Guide to Investing for Beginners in India

Step 5: Create an emergency fund

A financial plan must also include to create an emergency fund that helps deal with emergencies. Considering the ongoing uncertain financial environment, you must maintain an emergency fund for amount that can cover your family’s expenses for at least 8 to 12 months. You can use this fund during any financial emergency such as sudden hospitalization, job loss, etc.

Step 6: Get your family insured

You always work hard to fulfil all desires of your family & loved ones and make themselves happy. However, an unplanned occurrence such as your sudden demise or accidental disability can put your family in a serious financial crisis turmoil. Choosing the right insurance coverage will serve as a safety net for your entire family.

You should choose life insurance, health insurance, motor, home, and business insurance. You must include the insurance coverage in your financial plan that ensures financial protection from any mishap.

Step 7: Estate planning

Estate planning refers to passing your assets/ investments to your children or other successors. In this, you can decide how much of your estate that includes property, financial investments, etc you want to pass to whom, after your demise.

You can create a will and make it accessible to beneficiaries, when you are gone. Estate planning is one of the most important aspects of financial planning and must include in your financial plan.

Step 8: Plan for taxes

Taxes is something that you need to pay every year and that’s the reason, you must plan for it to ensure you have to pay a lesser amount towards taxes. There are various investments in India that offer tax savings and high returns as well. You can also take professional assistance from a financial planner to ensure your tax planning is adequate.

Step 9: Plan for retirement

If you want to live a dream life after retirement, you need to plan it on financial front. To plan it effectively, you firstly need to determine an amount that you may need to live a life comfortably after retirement. Then, you can invest while earning to achieve your goal.

Getting a right financial plan for retirement enables you to live life on your own terms.

Step 10: Review the financial plan regularly

Once you have created a financial plan and start implementing, it’s also important to keep review it frequently and make modifications to ensure your plan is one the right path to achieve your life’s goals.

When you check your financial plan periodically, it becomes easier for you to cope up with unplanned life occurrences, financial setbacks and attain your financial goals.

Related: Financial Planning for Young Adults

Bottom Line

You must create a customized financial plan that help you accomplish your short & long-term goals and succeed with your finances. Identifying your potential financial goals is of prime importance and after that, you can start investing, plan for retirement, insurance planning, plan for taxes, pay off debts, and many others.

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