Home Financial & Banking Terms How to create a Financial Plan which works?

How to create a Financial Plan which works?

Financial Planning

“  Planning is bringing  the future into present so that you can do something about it” -Alan Lakien

Financial planning is an ongoing assessment of your financial which helps you make sensible decisions about your money and in turn helps you achieve your financial goals and lead a financially happy life.

Goal based financial planning tries to look at your profile, your beliefs and resources and marry it to external conditions to produce a financial plan for you.

Summary of how goal based planning works is below :
  • Who are you as an individual, what matters to you, what is your personal risk profile, and vision of good life.
  • How much you own, your Incomes/expenses , Assets & Liabilities
  • What are your cultural beliefs
  • What are external market condition like tax laws, state of economy, interest rates/inflation rates etc.

Based on this framework here is a 4 step method to create a great financial plan.

1.   Evaluate your current Financial Position

Look at your Assets and Liabilities, Calculate Net worth

financial planning made easyA positive net worth indicates that you do not have any near term liabilities to pay for and you can focus on investing for the future.

Look at your Cash flow and calculate surplus and deficit

The next step is to understand your inflow and outflow of the money, this helps us calculate your monthly or annual surplus, which can be deployed to achieve your financial goals, ensure that you enlist all your income and expenses and your monthly surplus will simply be :

Total Income – Total Expenses

2.   Setting up your Financial goals

Once you have evaluated your current financial position, next step is to identify your key financial goals.

Before we go about setting up financial goals, bear in mind that your Financial goals should have following features:

They should be:

      • Specific
      • Measurable
      • Achievable
      • Rewarding
      • Time bound

Recurring and Nonrecurring goal

Financial goals are a mirror image of your life events, as in life some events are recurring while some events are non-recurring.

For example, most of us marry only once but we travel every year. In this case travel is an example of recurring goal. Similarly retirement planning is something you have to do all the time every year, so it’s another type of recurring goal.

Short term, Intermediate Long term goals

Every goal has a time horizon. Based on the time, they can be classified into Short term, intermediate or long term goals. It is very important that we attach time horizon to every goal. This ensures we are investing in right financial assets for these goals. For example, if you want to buy a car next year then investing in equities to achieve that goal might not be a good idea.

3.  Create a roadmap for achieving your goals

Prioritize your goals

Now that we have identified our key goals, next step is to do some prioritization. In general, priorities are based on your personal requirements, but I recommend following standard structure to my clients for prioritization of goals. To understand it better, let us have a look at the infographic below.

financial planYour first focus should be emergency goals followed by health & safety goals and then retirement goals.

Calculate Funds that you will require to meet each goal

Next step is to figure out funding requirements for each of your goals. While there are standard thumb rules for each of the goals but actual fund requirements are a different for each person.

For example – emergency funds, you would require approximately 4-6 months of your expenses while for retirement funds you would need to plan more in detail according to your current expenses and your projected post retirement expenses, keeping in mind the role of inflation.

Evaluate alternatives on how you can achieve those goals

Once you have the fund requirements in place, now you need to marry this with your risk profile to build the right portfolio of investments that will ensure you achieve these goals, your financial planner can help you build the right mix of assets as per the goal requirement to ensure you are on the best possible track to achieve your goals

 4.  Periodic Review and Evaluation

Our lives evolve as we grow and so does our financial requirements. With time your income will grow, your expense profile will also grow. While a good financial plan tries to predict some of these changes, it’s imperative that you periodically review the same. Periodic review not only helps you respond to above changes but also lets you evaluate if you are on right track to achieve your goals and make any changes if required.

Financial planning is an ongoing process till we live we need to plan, good financial plans marry your requirements, with your resources to produce optimal output. So have you created your financial plan? If not, take the next step and connect with your financial planner today.


  1. This 4 step method will indeed help many to plan their finances in the right manner.To prioritize ones goals is the foundation stone for a good financial plan.You have explained the same very nicely with the help of this Goal hierarchy infographic.
    Thanks for the great info.

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