Financial Planning: The Complete Guide

Financial planning should be an objective for every individual in life. It helps in allocating the income for the different money goals while ensuring financial freedom at a definite age in life. And, during a financial crisis or a pandemic, it will help you manage the situation wisely.

Therefore, financial planning, considering the essential factors at the right age, is the best way to secure your life. So, what is financial planning? How to achieve it in the long term, and what are its benefits? Let us get started to understand it in detail here.

What is Financial Planning?

Financial planning refers to managing your income to allocate funds for the current expenses, future commitments and liabilities and for an emergency wisely to accomplish the money goals timely while having a content life. It is a long-term process that has to start early for a peaceful retirement.

Scope of Financial Planning

An appropriate financial plan should have the necessary elements to ascertain the following scope:

• Balance cash inflow and outflow for a comfortable life
• Ensuring financial independence after retirement
• Manage a financial emergency
• Help reduce tax* liabilities
• Accomplish money goals
• Investments for wealth creation
• Incorporate risk management strategies and insurance
• Retirement investment
• Space to review the financial plan and make changes

Objectives of Financial Planning

Now that we understand the financial planning meaning and scope, let us understand what should be the objectives of your financial plan before we get started with the process.

• Understand the current expenditure and regulate it to manage the income wisely
• Save necessary funds for an emergency
• Allocate the required funds for future financial commitments and retirement
• Financial freedom at different stages in life
• Pay and clear off debts
• Timelines to achieve the money goals

The Financial Planning Process

Financial planning is an important process. Therefore, you have to understand the inputs and outputs of the financial planning process to strike the right balance.

Financial planning includes current income, liabilities, risk appetite and future financial goals. The output of the financial planning process should help you plan for achieving the financial goals utilising the income considering the inflation and the tax* liabilities.

Steps in the Financial Planning Process

Before working on the personal financial planning process, discuss with your family the different monetary goals to ensure you make a detailed plan to secure your family financially at any time. Here are the steps to the financial planning process-

• Analyse your current financial condition – Financial planning can start at different stages in life. Therefore, understanding your current financial condition, including your income, debt, routine expenses, etc., becomes important.
• Make a financial budget – List down your different sources of income. For example, your salary, your spouse’s salary, rental income, etc., based on your family’s income. Note down the different types of applicable expenditures. It can include groceries, medical, travel, fuel, clothing, entertainment, etc. Then, allocate the necessary funds to the different expenditures.

While allocating the funds to the necessary expenditures, ensure to keep aside a specific fund for emergencies and investments. At the start of every month, make the financial budget and spend accordingly. Note down the spending as and when it happens.

Even if there is a mismatch, try to adjust the funds, reduce unnecessary expenditures, and try not to touch the funds reserved for emergencies and investments.

• Plan for long-term investments – Now that you have decided on a monthly financial plan, work on the long-term commitments. It is an important step in the financial planning process. First, decide on the loans you are planning to avail of for increasing your assets, such as purchasing a car, house, etc.

Then, calculate the timelines for spending funds for your child’s education and marriage. Also, include your desires such as planning for a vacation, pursuing higher education, starting a new business, etc. Finally, and most importantly, decide on your retirement expenses. Based on these long-term financial goals, inflation rate and risk appetite, decide on the financial instruments and start your investment journey.

While focusing on the retirement plan, consider your routine retirement expenses and invest in it wisely to suffice your requirements to help you live your retirement life peacefully. You can also choose to accumulate funds as a retirement investment and purchase an annuity plan to help you with a regular income post-retirement.

Our Tata AIA life insurance company has different retirement solutions to help secure your financial needs. For example, guaranteed¹ return plans combine life insurance with savings for a lump sum or regular income, and annuity plans provide immediate and deferred annuity solutions. Therefore, financial planning in insurance can also yield the necessary benefits.

• Start your financial plan – After deciding on the allocation of funds and the investments, decide on the timelines to achieve the long-term goals and start activating your financial plan by restricting your expenses and increasing your investment funds accordingly.
• Revise your financial plan – With the changes in lifestyle and increased cost of living, your financial plan is subject to change. Therefore, keep revising your financial plan based on the changes to accommodate the important expenditures without affecting your retirement plan and other investments.

Advantages of the Financial Planning Process

If you have spent sufficient time preparing for the financial plan and choosing the right investment solutions, you can benefit from the following advantages in financial planning.

• Strike the right balance between income and expenditure
• Reduce tax* liability
• Ensure sufficient funds for the necessary short-term and long-term financial goals
• Have a peaceful retirement

Manage a financial crisis during an emergency