The phrase ‘financial planning’ is touted as a money management tool for individuals. What is it all about and how to get your own financial plan going? Read on to know it all…

What is a financial plan?
Kiran and Jatin were married last year. Both are in their late 30s. While Kiran is a finance professional, Jatin is an architect. Jatin is keen on growing his business for which he needs funds, The couple also aspires to own a home (they live in a rented accommodation). Besides, they have other aspirations such as having a child, going on a foreign vacation, owning a car, etc. In other words, they face the dilemma of limited means and a number of needs.

What is important for the couple to do is to first prioritize their needs and goals. Once this is done, they can work towards saving and accumulating funds to achieve each of these goals.

Let’s consider buying a home. Let’s say the couple plans to buy a two-bedroom home in a suburb where, depending on the rate per square foot, the expected cost of a suitable home is about Rs 50 lakh. Now that they have arrived at this number, they will need to plan how to fund this cost. They can take a home loan for a part of the cost and invest the balance from own funds. They will need to understand and plan on how to pay the home loan EMIs.
This is an example of goal planning.

Just like an architect makes a building plan before commencing construction so that he knows what he is going to build, how much it would cost, by when it is likely to be completed, etc., a financial plan is the document on the basis of which your financial life can be moulded to achieve all that you want in life. It is nothing but a blue print of your financial future.

What is the need?
Well, our financial resources in life are limited and the demands on it, almost infinite. The limited resources are to be utilized judiciously to achieve the maximum that we desire from life. A financial plan is in part a reality check on your current financial position and in part a road map to where you want to reach. In short, it acts as a bridge connecting your present and future, reality and dream. Without a well thought out plan, your finances face the risk of going haphazard with no aim or purpose. When you are clear about where you are and where you want to reach in life, the possibility of achieving it is improved, isn’t it?

Baby steps culminate in a marathon
Every marathon begins with the first step. Those who made the first step are running and those that haven’t are still watching. Well, life waits for none, right? So make your start now. Financial planning is not rocket science. It is mostly common sense and prudence. It may look like a daunting task initially. Take the baby steps. Start by analyzing your financial health. What you own, what you owe, how much do you save, where is your wealth now and where are you investing. Put a number to your future wishes and dreams. Be clear about when you want to achieve them and how much it is going to cost. This will give you an idea of what is required to reach there, in terms of savings and investments.

The milestones to be crossed
Life is full of events, both expected and unexpected. Being prepared to face them reasonably well is the cornerstone of financial planning. Break your life journey into smaller segments with identified milestones. Focus and work towards achieving those small tasks which will eventually lead you to your larger goals. Put away money for these tasks before you spend.

Manage the pitfalls
Life does not always play out exactly as per your script. You may encounter unexpected bumps and trenches. Twists and turns are integral to life. Being prepared to handle those nasty surprises that life throws at you is important to financial success. Identifying the risks that you face in life is an integral part of financial planning too. The lurking risk could be premature death, a debilitating injury, a huge medical bill that can cripple your finances forever or anything that leaves a lasting impact on your financial life. Protect your wealth and family with adequate insurance. Many a time, insurance seems a wasteful expenditure. It would appear so only till the moment life hits you hard.

Stay the course
Good financial decisions and actions bear fruit only in the medium to long term. So do not get frustrated if you fail to see instant results for your actions. Remain committed to the prudent and wise course you have charted for yourself. Having a plan in itself is a laudable achievement. The benefits would trickle in over time provided you have the conviction and patience to stick toyour plan. Always visualize the larger picture that such financial discipline would eventually build for you. This would keep you moving even when the going seems uninteresting.