What is financial planning? How do I make one? | Investment Education


Financial Planning is more of a roadmap that allows you to handle and manage your money better. Not only does this tell you what to do with your money, but a financial plan is also extremely necessary for building financial security and reducing stress from your life. A financial plan is important for creating a roadmap to goals such as buying your own home, retirement planning, etc.

Making a financial planning is a tedious but necessary task. There are ways you can get your financial plan set by hiring a financial advisor, investing with a robo-advisor, etc. Or you can get started right now by following these seven steps.

7 steps to making a financial plan for myself

Even a basic run-through with these steps will help you get a better hold on your money. So read on:

1. Set important goals
2. Keep a track of your money
3. Employer Matched Savings Plans
4. Emergency Planning
5. Tackling and managing debt
6. Investing to grow your savings
7. Evolving your financial plan

How to make a financial planning?

Step 1: Key to your financial plan: Goals

Understanding what financial goals matter to you most in your life comes above anything else. These goals might stand for where you want to be financially in 10 or 20 years, or might be about your plans to buy a home or a car.

To start with putting down your financial goals is important since it sets a roadmap that will inspire you to work and turn those aims into reality.

Step 2: Know where your money goes

This involves getting an idea about where your money goes – calculating your monthly cash flow. Having an accurate picture of knowing what’s coming in and what’s going out is important to creating a financial plan for yourself.

As a rule of thumb, one must follow the 50/30/20 rule. Which says that 50% of your salary should be spent towards necessities like house rent, transportation and other recurring payments; the other 30% should be put towards your wants & requirements like dining out, entertainment, etc. The remaining 20% should be put towards savings & repayment of debt like student loans, house loans, etc.

Step 3: An Employer Matched Savings Plan

Any investment advisor (Financial Planner) would advise you to get an employer-matched savings scheme or a retirement plan. Hence, you should open an EPF account, since it not only helps you plan for your future but also helps you save on taxes under Section 80C.

Sure, it might decrease your take-home pay right now, but it sure is worth putting in the extra dosh of cash for your future.

Step 4: Financial Planning for Emergencies

Planning for emergencies is the bedrock for any financial planning. To start small you should have about Rs 50,000 saved up for emergencies or repairs so that any unexpected bill does not mess up for finances. You should then build from there and move on to the next goal, say Rs 5,00,000.

You should also aim to build a good-credit score, since it gives you the option to take loans on a decent rate when you need it, for eg. buying a car.

Step 5: Tackling & Managing Debt

This is a crucial step in managing any financial plan. This requires you to keep under control any debt that can pile up. This can include debts like credit card payments, short term loans, etc. Interest rates on these can be so high that you end up paying two or three times of what was initially borrowed.

Step 6: Investing and growing your savings

Making investments is something that sounds like a thing for rich people or something that you do once you’ve established yourself in your life. But that is not true.

Investing can be as simple as putting your money in a monthly SIP. But the key is to start early. You can calculate the impact of starting your SIP early using a SIP Calculator.

There are several ways you can start investing, but the easiest way would be to start saving with a SIP with Sqrrl.

Step 7: Evolving your financial plan

The most important aspect of a financial planning is that it evolves as your finances improve. This requires you to ensure that you keep involving your financial plan by:

      • Increasing your contribution to your retirement fund
      • Increasing your emergency fund until you have 3-6 months of essential living expenses.
      • Taking insurance to improve your financial stability.


how to evolve your financial plan

A financial plan is not supposed to be a static document, but rather it is a tool that allows you to track your progress and keep adjusting it as your life evolves. As your financial state improves, you can also transition from making your own financial plan to choosing a financial advisor.

Be sure to check our guide about ‘How to choose a financial advisor’ and mutual funds investment guide for beginners in order to get started.

Written by

Sqrrl Fintech