Financial planning is the six step process which helps you in achieving your financial goals in life in a systematic and planned way.

It involves the following:

1. Make a household budget.
2. Monitor your expenses wisely
3. Maintain a personal account statement
4. Dealing with surplus cash judiciously
5. Create your own investment Portfolio
6. Plan for Retirement
7. Debt Management
8. Insurance coverage
9. Estate Planning
10.Tax Planning

  1. Make a Household Budget :

Making a monthly budget is very important to bifurcate fixed and variable expenses and also to see whether some expenses can be curtailed.

After making budget and calculating surplus amount, investment of that surplus is important before you start spending money.

Systematic saving on a regular basis makes you rich. You may achieve your financial goals in a timely manner. If you are able to invest 10% of your income every month, it can help you to achieve various financial goals in your life. You may invest this amount in a liquid fund. The liquid fund is a type of debt mutual fund which invests money in fixed-income generating instruments like FDs, commercial paper, certificate of deposit etc. and Equity through Mutual Fund schemes depending on time horizon of goals.

  1. Monitor your expenses wisely

If you are living month on month basis depending on your salary to pay for various expenses and find yourself in a situation that you are postponing some expenses for next salary, it means you are living way beyond your means. Maybe there are a lot of unplanned expenses.  See that you are following your budget to pay for various fixed expenses and investing money for various goals in future.

  1. Maintain personal account statement

Having a personal account statement helps to know what are your investments and what are your loans. It’s a powerful tool to take your finances to the next level. Before starting to create account statement, pull together your bank statements and other proofs of the liabilities. Then list down your assets like the bank balance, all investments, home value, and value of other assets. Take a sum of all the assets to arrive at the total value of your assets. Afterwards, list down your liabilities such as car loan, home loan, credit card balances and remaining balances in other loans. The sum of all the liabilities will show the value of the money you owe.

When you subtract the value of liabilities from assets, you get your Net Worth. Ideally, it needs to be positive which means money you own is greater than the money you owe.

  1. Dealing with surplus cash judiciously

How you deal with the surplus cash will take care of your future Net Worth. When you don’t have a plan, you are likely going to indulge in overspending. This money could have been used to make you financially self-sufficient. In the backdrop of inflation, everything is going to be costlier with each passing year. If you don’t invest, your money won’t grow to bridge the inflationary gap. You might have to work beyond your 60s to pay your bills. Investing the surplus money will help in leading a luxurious life.

You should start with specification of financial goals like buying a car, buying a house, vacation planning or planning for retirement. Categorise those goals into short-term and long-term. Goals that can be achieved within 1 to 3 years are essentially short-term. Goals that need a horizon of 3-5 years are called medium-term goals. Goals that require more than 5 years to achieve are long-term goals. Then identify your risk appetite i.e. the degree to which you are comfortable with a fall in the value of your investments. In young age you need to have a high Risk appetite as it is the time to accumulate wealth and as you grow in age, your exposure to equity should reduce and debt should increase.

Mutual funds have a very simple option to invest your money systematically. You can start Systematic Investment Plan (SIP) at a nominal sum of Rs 500. Under SIP, a fixed amount gets deducted from your savings account  and is invested in mutual fund scheme of your choice.

  1. Create your personal investment Portfolio

Constructing your first investment portfolio is an achievement in itself. It is your first step towards wealth accumulation.

Building a portfolio involves distributing your investment amongst asset classes like Equity, Debt, Gold, Real Estate and cash. It is known as asset allocation. Although equity is the best tax-efficient and inflation beating investment , but putting all your money in equity is not a prudent move. You need to diversify the amount that are to be allocated in each asset class as per your investment goals. It is always wiser to be a long-term investor in order to accumulate greater corpus.

Once you have constructed a portfolio, you need to rebalance it periodically to keep the portfolio risk within expected limits. This is relevant from standpoint of market fluctuations. At the very outset, you may decide the time intervals after which you will be rebalancing. You can do it once in every six months or a year.

  1. Plan for Retirement

Planning for retirement has become all the more important today. Due to nuclear family system, increased life expectancy, increase in healthcare costs, one needs to accumulate sufficient amount of corpus for retirement

It is never too early to plan to start planning for retirement. The earlier you start, the richer you retire. It happens due to the “magic of compounding”. In this way, you can even retire early and lead a stress-free life. While planning for retirement, you need to clarify a few points like deciding an age at which you want to retire. Along with that estimate how much money you will need every month to meet your post-retirement expenses.

Suppose that you plan to retire at 60 years and your monthly estimated expenditure after retirement is Rs 50000. , then assuming a rate of return of 12%, you need to contribute a SIP of Rs 6500 every month for 30 years to accumulate a corpus of Rs 2 crore. This amount will be sufficient to have a comfortable retired life.

  1. Debt Management

Management of Debt is very important. Timely payment of Home loan, Car loan, Education loan or personal loan EMIs and to keep provision from your monthly income for the same is not an easy task or you may end up borrowing fresh loans to pay off older loans. If it gets out of control, then you may fall in a vicious debt trap. Your critical life goals may get side-lined and even your retirement may get delayed. However, management of your debt payment may keep you away from such troubles. In case you have a lot of debt to shoulder, start paying off the most expensive one. In fact, the credit card has been regarded as the most expensive form of debt. As soon as your salary gets credited each month, pay off your credit card balances in full. Don’t fall for the lure of paying off the minimum balance. Even before you know, the interest will spiral up to eat out all your savings. Make it a point to use the credit card only in case of emergency. Always keep debt as the last resort. As far as possible, make down payments for your purchases.

8. Insurance coverage

One needs to buy a Term Insurance policy to take care of loved ones in case of any mis-happening. Health Insurance policy is required to meet the rising health care costs. Purchase of property insurance is also must.
Just like investing is essential for wealth accumulation, insurance is essential for wealth preservation. However, investing and insurance are two separate things which most individuals don’t understand. They buy a ULIP and feel themselves at ease. But, this is the biggest mistake which they make. They end up paying more and remain inadequately insured. Instead of this, a term insurance plan will be a wiser proposition to buy. Term insurance plan provides you higher risk coverage at a reasonable price.

  1. Estate Planning

Estate Planning meaning transfer of estate includes all the assets like house, car, gold, financial investments or any money lying in savings account. It’s everyone’s responsibility to write a WILL and decide about allocation of assets to different heirs.

You can start by preparing an inventory of assets that you own. Create a list of beneficiaries & proportion of assets that you want to allocate to each one of them. Make a WILL, get it registered. It will ensure that the beneficiaries do not have to face challenges in order to get the ownership of assets. A Solicitor can help you write the will properly.

  1. Planning your Taxes

In tax planning, you analyse your finances from a tax efficiency point of view so as to plan these in the most optimized manner. You attempt to take advantage of the various tax exemptions, deductions, and benefits so as to reduce your tax liability at the end of the financial year. Even though tax planning is very much legitimate in nature, you need to ensure that you don’t indulge in tax evasion or tax avoidance.

From a tax planning standpoint, you can make use of a number of tax saving options. Like the deductions available from Sections 80C through to 80U that are given in the Income Tax Act. The most efficient way to take advantage of Section 80C is to invest in Equity Linked Savings Scheme (ELSS). It has the shortest lock-in period as compared to all the other tax-saving options available under Section 80C. In this, you can invest Rs.1, 50,000 and get deduction. Additionally, the ELSS is a diversified equity fund helps you to achieve your financial goals via investment in the equity market.

Career Opportunities In Financial Planning 

Financial Planning is one of the fastest-growing professions across the world and with a huge demand-supply gap in India; the youngsters planning a career in Financial Planning have a bright future and can take advantage of many opportunities coming across in the financial services sector.

Financial Planners and their Role  

Financial planners are the professionals who help individuals to plan the investment of money which is not only tricky but also challenging and difficult task.

Every individual wants to invest the funds for future to fulfil financial goals  and other social commitments be it higher education of children, marriage of children, retirement, purchase of  house , medical and health purpose or any other goal Financial planners offer their advice to the persons on their investment and saving options to achieve their social, personal, professional goals and commitments arising in future. Most people need guidance on where to invest, how to save taxes, the best insurance scheme (life as well as medical), which avenue to invest in, which stock to hold and which to sell, how to plan future career of their college going children and their own retirement. For all such services; planners come into picture for rendering expert advice and consultancy to their clients on utilizing the hard earned money and its better use for achieving financial goals.

 Financial Planners performed following functions:

  • They identify various financial and personal goals of their clients and the time period of investments so that they can plan their investment accordingly.
  • Financial planners assess and evaluate the risk taking capability and financial strength of their clients for better utilization of funds.
  • They study the market potential, investment avenues, instruments of investment, financial products available and educate, suggest and advice to the clients.
  • They assess the risk-return attributes of various investment options with the help of analytical techniques and accordingly match the risk taking capability of clients.
  • Tax planning is an area where financial planners are really helpful because they upgrade themselves with the latest taxation changes by the government and thus they suggest their clients to invest the amount of money in tax-saving instruments for better return and assured appreciation.
  • They are also responsible for helping their clients about the comparative return-risk profile of the invested funds in different instruments.
  • They keep their clients abreast with the updates on financial products having different characteristics to suit their individual requirements.
  • Financial planners also help their clients by advising them about the right time to invest and proper timing to shift their invested money from poor performers to better performing funds.
  • They help the clients by investing their money and do accurate documentation with thereby saving their time.
  • They also manage the wealth of their clients, retail and HNI.
  • Retirement and insurance planning is an important financial goal. They advise their clients on various pension schemes and insurance products with risk-return profiling.
  • In addition to the above duties the financial planners frequently make their clients aware about the recent policy changes and economic environment which may affect the investment made by them and accordingly advise, revise or modify their investment strategies.

Organisations giving employment opportunities in Financial Planning  

There is vast scope of employment for the people doing courses on Financial Planning/Wealth Management.

Initially financial planner can start his career with a Financial Planning/Wealth management firm, Distribution house or Asset Management Company. They can also start their career in Insurance Company or a Bank offering Wealth Management Services.

New opportunities lie in the field of financial planning of real estate and trusts which is still untapped with lot of potential. In private companies there is always a huge demand for financial planners. Experienced Financial Planners can find satisfying careers in investment banking, financial consulting, and financial analysis and insurance companies.

Knowledge Process Outsourcing (KPO) firms provide employment to financial planners as Data Analyst, Market Researcher, Client Development Analyst, Derivatives Analyst, Equity Analyst, Research Associate etc. Similarly financial planners are much sought after in the brokerage houses for positions such as research analysts, business analysts, research associates and technical analysts etc.

Banks require qualified and experienced financial planners for managing their investment advisory vertical. Relationship Managers in Banks help HNI Clients to manage their portfolio.

Starting your own financial planning firm after few years of experience will help even to tap the market in your home town. A desired qualification with a set of skills is necessary conditions for becoming a successful financial planner. Good inter personal skills; knowledge of financial markets, financial products, and their risk return attributes is important requisite. Financial planning is a fee based service and the fees should be a reasonable amount depending on limited advice or comprehensive advice.

Journalism is an area where financial planners can take advantage of their expertise provided they possess writing, analytical and presentation skills with a passion for writing and spreading financial knowledge to the public with convincing ability.  Through print media, they can spread awareness on various products suitable to different category of clients.

Increasing financial literacy is important as many in India do not have knowledge of basic financial terms thereby influencing their investment decision making.

Financial planners can associate with financial services industry to spread financial literacy thus enabling millions to take right decisions.  Also there is enough potential in teaching, training and research in the area of Financial Planning. Even financial planning and consultancy can be done on internet using networking sites following professional and ethical code of conduct.

Skill Set Required for Financial Planning  

Apart from possessing professional qualification and desired certificate/degree/diploma, the various skills and proficiency required to be a financial planner include; interpersonal skills, convincing capability, patience, strong Commitment to ethics and client, effective communication, positive attitude, strong analytical ability, problem solving skills, updated  information about economic  environment and legislations related to tax, business or profession, initiative, creativity, relationship management, soft skills on computers, logical mind-set, knowledge of local language for establishing better connectivity with the clients and time management skills.


Madhu Sinha,

Campus Director, ICoFP Mumbai

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