The Next Big Thing in Personal Financial Planning (2023)

Financial planning is an ongoing process that tries to assist people in making prudent financial choices so they can attain their life goals. With or without obstacles in the way, a financial plan typically offers a path for accomplishing your life goals in a systematic and planned manner. The most crucial aspects of the financial definition include creating a budget, setting up emergency funds, paying off debt, and focusing on long-term objectives. Additionally, there are several goals for personal financial planning that could be anticipated:

  1. Determining capital structure – The capital structure refers to the capital composition, or the relative type and proportion of investment needed in the business. This encompasses short-term and long-term debt-equity ratio considerations.
  2. Determining capital requirements – Other elements such as the cost of current and fixed assets, promotional costs, and long-term planning will affect this. Capital requirements must be considered from both short-term and long-term perspectives.
  3. Framing financial policies in terms of borrowing, lending, cash management, and so forth.

Elements of Personal Financial Planning

Furthermore, personal financial planning might be difficult if you are unaware of the aspects you can use to make investments. Therefore, the elements of a personal financial plan are cited below:

Mutual Funds

These are market-linked investments in which your money is invested in various instruments such as equities, money market funds, and so on. Mutual funds can be a valuable addition to your financial strategy.

National Pension Scheme

It is a retirement program backed by the government that enables clients to put money into several market-linked programs, including debt and shares.

Public Provident Fund

PPF is a government-sponsored investment program that enables risk-free returns. Although the plan’s 15-year maturity period allows for partial withdrawals after six years,

What is Financial Planning?

Financial planning is the process of predicting the amount of capital needed and choosing who will compete for it. It is the process of creating financial policies for an organization’s purchasing, investment, and management of funds. Personal Financial planning involves developing objectives, rules, procedures, strategies, and budgets for a company’s financial activities. This ensures that financial and investment strategies are suitable and effective. A financial plan is not rocket science, and you do not need a financial background to do it. You only need goals and the determination to achieve them.

The first step in a personal financial plan is to start saving. What would you do if you desperately needed money but didn’t have any? Take a loan from a buddy or use your credit or debit cards. You will incur debt whatever the decision you make, unless you had foreseen the difficulty and saved up some emergency funds. The majority of us also have financial objectives, like buying a house or a car. To achieve all of these objectives, money is required, but where does it come from? Savings are ultimately what is required for personal financial planning.

Therefore, personal financial planning involves organizing your finances to ensure that you reach all of your goals. These could include paying off debt, setting aside funds, making a budget, investing for the future, preparing for college, or saving for a new home.

Basics of Financial Planning

Following are the basics of personal financial planning one needs to keep in mind for a good outcome:

1. Establish your goal and objectives

The basic goal of personal financial planning is to assist you in achieving your financial objectives. Make certain that your financial objectives are specific, measurable, adjustable, realistic, and time-bound, or S.M.A.R.T.

2. Start with a budget

Budgeting is the process of developing a balanced formula for making the best use of your hard-earned money. A budget is an itemized description of expected income and expenses for a certain period that can assist you in keeping your expenses in check and staying out of debt.

3. Keep a contingency reserve

Creating an emergency fund, also known as a contingency fund, is essential to a proper financial strategy. The contingency fund is saving six months’ worth of living expenses. This includes everything from household bills to EMI payments and any other monthly expenses you may spend.

4. Asset Allocation is the key

The core of personal financial planning is asset allocation. If you don’t want your possessions to end up in the wrong hands, you should arrange your estate as soon as possible. All you have to do is make a list of your assets and beneficiaries, and then decide how much of your assets you want to give to each.

5. Review your goals and Market Situation

A regular assessment of your financial plan boosts your chances of meeting your objectives since it allows you to account for any personal or economic changes. As a result, examine your plan frequently and eliminate items that no longer bring value to your portfolio.

Who Needs A Financial Plan?

Everyone needs to be aware of their financial plans as it creates a mini-roadmap for you as you go through the procedure. Therefore, the individuals who need a financial plan are discussed below:

1. One who doesn’t know much about managing money

Money management is not always easy, and it can be difficult to master quickly. It can be difficult to find the time to learn how to create a budget and financial plan, especially for busy young professionals. Hiring a financial planner can assist you in completing this task.

2. If you are overwhelmed by debt

Anyone who has ever had debt—whether it was from credit cards or student loans—knows that it can feel unmanageable at times, especially if you’re also trying to save for retirement or other financial objectives or live in an expensive city. If you are feeling overwhelmed by your debt, think about speaking with a financial planner who can assist you in creating a debt repayment strategy that fits your needs while also taking care of your other financial objectives.

3. If you have a complicated financial situation

When you are self-employed or run your own business, your financial situation differs from a person who receives a wage every two weeks. A financial planner can assist you in better understanding the concept of money management and the special needs of managing your income and you can work on financial planning reduction.

4. If you can’t invest on your own

One of the most effective strategies for accumulating wealth is investing in the stock market, however, a significant number of people avoid investing out of fear of losing their money. If this suits you, talk to a financial planner about developing an investment strategy that meets your risk tolerance.

Importance of Financial Planning

Since financial planning is important for all individuals, here are, a few of the same discussed. Have a look at it:

  • Personal Financial planning assists in maintaining stability by creating a healthy balance between outflow and inflow of funds.
  • Furthermore, personal financial planning implies that fund providers can easily invest in companies that practice financial planning.
  • In addition, personal Financial Planning aids in the development of growth and expansion plans, which aid in the organisation’s long-term sustainability.
  • Financial planning decreases risks associated with changing market patterns, which can be easily addressed with adequate finances.
  • Personal Financial planning aids in minimizing risks that might hinder a company’s expansion. This contributes to assuring stability and profitability.
  • Also, financial planning reduces and helps manage money in the best way possible. It can also assist you in calculating the number of resources needed for monthly spending.
  • Financial planning enables you to develop an integrated investment program that focuses on your goals, risk tolerance, and available resources, allowing you to enhance the return on your investment.

9 Steps Guide to build a personal financial planning

Below given are the 9 steps which are required to create personal financial planning:

1. Set Financial goals

Knowing why you are saving your hard-earned money is usually a smart idea. Therefore, the primary objective of personal financial planning is to help you achieve your financial goals. Start by listing them down into short-term, mid-term, and long-term. Financial goals are objectives you set for your spending, investments, or savings over a specified period. What kind of goals you want to achieve typically depends on the stage of life you’re in. Further, personal financial planning offers a variety of services to its clients. Many people need to organize their whole financial situation, while others require aid with their taxes, retirement money, or other financial responsibilities.

Most importantly, to set financial goals first, figure out what matters to you and then sort out what is within reach, what will take a bit of time, and what must be part of a long-term strategy. Further, apply a S.M.A.R.T goal strategy i.e. Specific, Measurable, Achievable, Relevant, and Timely. Then create a realistic budget, get a strong handle on what’s coming in and going out, and work it to address your goals. Lastly, monitor your progress and ensure you are hitting certain benchmarks. If not, take some time to re-evaluate what went wrong.

2. Create a budget

Consider this your monthly cash flow and investment strategy. With budgeting, you give yourself the authority to select where and how to send your money. You are living over your means if you find yourself in financial difficulty before the end of the month, especially if you are living paycheck to paycheck. Yes, we live in an easy, instant gratification, consumer spending-oriented world where unforeseen bills are bound to occur. These could be the reasons why you are constantly short on funds for basics. You can break yourself out of this financial bind by creating a budget. You will not be able to manage your income and expenses unless you have a well-planned budget and tips for money management. A budget will assist you in determining how much money is coming in and where it is going.

The best way to make a budget is to begin by classifying your expenditures into either of two groups:

  1. Fixed or variable
  2. Necessities or luxury
  3. Urgent or non-urgent
  4. Avoidable or unavoidable

This allows you to establish a hierarchy of requirements or desires and prioritize the most important ones first. In general, to achieve personal financial planning success, you must recognize that you have finite resources and unlimited wants; consequently, prioritizing will be critical.

3. Plan for taxes

It can go a long way toward allowing you to save more money next year. In general, tax planning assists you in analyzing your finances and determining ways to maximize them. It enables you to take advantage of tax breaks, deductions, and perks to reduce your tax bill after each financial year. While tax planning is permissible, avoid engaging in tax avoidance or evasion. As you progress through life phases, certain factors of tax planning could become significant. For example, if you own a business, you may seek strategies to lower your income tax liability or business taxes. You may be interested in reducing your capital gains taxes if you are an investor.

Tax planning is also important in deciding how and where to save for retirement. You may invest in a health savings account in addition to tax-advantaged accounts such as 401(k) and IRA. HSAs provide three types of tax benefits: deductible contributions, tax-deferred growth, and tax-free withdrawals for eligible medical costs.

4. Build an emergency fund

All the planning in the world will not assist you if life throws you a curveball and you are not financially prepared. This is where having an emergency fund comes in helpful. An emergency fund is money saved up for unplanned bills or life events. For example – If you lose your work or your car breaks down, you might use your emergency fund to cover your expenses. The amount to save for emergencies can vary depending on your situation and needs. A common rule of thumb is three to six months’ worth of emergency savings, but you may need to save more or less depending on your monthly costs and how easily you can replace lost income.

The first step in constructing an emergency fund is deciding how much protection you want to build. The best method to accomplish this is to open a separate bank or credit union savings account for your emergency fund. Online savings banks often offer the highest rates of return. You can set up an automatic transfer from your checking account to a high-yield online savings account. Decline the debit card offered by your online bank to further reduce spending temptation.

5. Manage debt

Creating a financial strategy requires understanding and effectively managing debt. The key to personal financial planning is debt management. If you are not cautious, you may borrow more to offset prior debts, causing your financial goals to be postponed. However, developing an effective debt repayment strategy will keep you from suffering such difficulties. When all of your extra money goes to your outstanding amounts rather than saving and investing, debt can be a hurdle to accomplishing your other financial goals. After you’ve paid off your high-interest bills, you can focus on lower-interest debts like student loans, vehicle loans, or personal loans. You should think about refinancing private student loans if it permits you to lower your interest rate.

Besides a handle on your finances, debt management plans can offer many other benefits: simple payment processes, less monthly time commitment, fewer interest rate changes, and so forth. Further, to manage debt more effectively, you may want to consider these steps which are:

  • Take account of your accounts
  • Check your credit report
  • Look for opportunities
  • Be honest about your spending
  • Determine how much you have to pay
  • Figure out how much extra you can budget
  • Determine your debt-reduction strategy

6. Protect with insurance

Life is uncertain and it can be changed in an instant as there could be various incidents in your life that could result in certain complications like loss of income and vice versa and these incidents can further put limitations on your finance and hold you back from staying on track with a personal finance plan. In such a situation, insurance can prove to be a boon for you because it is an important component of your financial plan. Ideally, insurance is a key component of your financial planning. Only if you keep saving and investing, you can achieve your financial goals and keep yourself prepared for unanticipated events that can hinder your financial plan. Therefore, in such scenarios, an insurance policy can be very helpful.

Besides, It can assist you in maintaining your emergency fund and providing the required funds at the time of an emergency. An insurance policy can safeguard you and your family and ensure that your finances are not impacted by extenuating circumstances like an accident, disability, illness, or even death that would result in a loss of income.

7. Plan for retirement

Even if it’s a long way off, decide what you want your money to do for yourself when you retire and formulate a plan to make it happen. Nowadays, retirement planning is more important than it was ten years ago. Because of our sedentary lifestyles and longer life expectancies, we are more prone to a wide range of illnesses, which drives up the expense of healthcare. This is just one example of many scenarios. Don’t put off personal financial planning for retirement. Take into account the idea that the earlier you begin planning, the sooner or richer you will be able to retire. When it comes to retiring, you must decide the age at which you wish to do so and approximate the monthly amount you will need.

The most effective method to save for retirement is to use unique accounts that offer significant tax benefits. You can contribute to retirement accounts at many places of employment, including 401(k) and 403(b) plans, the former provided for businesses/organizations and the latter by the government and nonprofit organizations. Additionally, everyone with a source of earned income is eligible to contribute to their retirement account or IRA. Several brokerages provide IRAs.

8. Invest beyond your 40

Put an engine behind your savings strategy to achieve your mid- and long-term goals. That’s what investing can do. There are lots of moving pieces to nail saving for retirement. Following are some crucial steps to do at various stages of life:

In your 40s

  • Most financial advisors suggest getting two to three times your yearly salary for retirement by the time you are in your forties. As a result, access a retirement calculator online
  • Put retirement ahead of paying for college.
  • Avoid becoming a lifestyle creep.

In your 50s

  • Experts advise having six times your annual wage saved by the time you are 50. Have seven times your annual salary in savings by age 55.
  • You can use online calculators to see how much monthly income you might be able to earn from your retirement savings, Social Security check, and pension benefit in a secure manner (if you have one)
  • If the results of your online retirement income calculator weren’t what you were hoping for, put more money into your account now. Once you pass the retirement savings Rubicon, the 50-year milestone, the yearly contribution limitations for IRAs and 401(k)/403(b) plans rise.
  • construct tax diversification

In your 60s

  • Have eight times your annual wage saved, by the time you’re 60. Has 10 times your annual salary been saved, by the time you are 67?
  • At age 62, you can begin receiving your retirement benefits. Every month you put off retirement past age 62 increases your overall payment. Your compensation will be 76% larger if you wait until you are 70 instead of claiming eight years earlier.
  • Earn enough to postpone beginning withdrawals from retirement accounts.

9. Create an estate plan

You don’t have to be affluent, old, married, or a parent to benefit from an estate plan, which also specifies who makes financial and health-care decisions for you if you are unable to do so yourself. The estate includes all your assets, including your car, home, and money in your savings account. And it is your responsibility to decide what happens to your assets once you pass away. You must plan ahead of time and make sure that each asset is lawfully assigned to the right person.

Estate planning and will drafting are not exclusive to the wealthy. If you don’t want your possessions to end up in the wrong hands, you should arrange your estate as soon as possible. All you have to do is make a list of your assets and beneficiaries and then decide how much of your assets you want to give to each. Then, prepare a will to ensure that all of the beneficiaries receive their fair share of your assets. It is recommended to consult with a lawyer.


Personal financial planning assists in keeping the proper balance of cash intake and outflow. It helps the individual or business organization adjust its strategy in response to changing market conditions. A financial plan, in other words, is a comprehensive plan that incorporates a person’s current financial condition, long-term objectives, and tactics for achieving them. These days, everyone keeps this plan current, either independently or with the aid of a financial advisor. So, if you are knowledgeable about financial planning, you can also become a subject expert with Chegg India. Take advantage of the convenience of working from anywhere at any time and gain global exposure for your teaching.

Frequently Asked Questions about Personal Financial Planning

Q.1 What are the 4 steps to Personal Finance Planning?

Ans. The four steps that are involved in the personal financial planning process are mentioned as follows:

  • Determine your financial condition and your financial objectives.
  • Identify and assess investment alternatives
  • Create and implement a financial plan.
  • Re-evaluate and monitor the plan.

Q.2 How do you plan a personal financial plan?

Ans. The process of planning personal finance is very important for livelihood, especially after retirement. Therefore the ways to plan personal finance are given below:

  1. Analyze your present financial condition.
  2. Determine your objectives.
  3. Identify financial gaps
  4. Prepare your financial plan
  5. Implement your financial plan
  6. Periodically review your strategy.

Q.3 What is the main goal of personal financial planning?

Ans. To improve personal financial health, one needs to set the main goal of personal financial planning. Therefore, here are a few goals given below:

Short-term Financial Goals

  • Establish a budget
  • Create an emergency fund
  • Pay off credit cards

Mid-term Financial Goals

  • Get life insurance and disability income insurance
  • Pay off Student loans
  • Consider your dreams

Long-term financial goals

  • Estimate your retirement needs
  • Increase retirement savings

Q.4 How do I start over financially?

Ans. To start over financially, all you need to do is to follow the below-cited steps which are:

  • Set financial goals
  • Create a new budget
  • Get rid of excess stuff
  • Build your emergency fund
  • Fund your retirement account
  • Make Safe investments
  • Find a second income stream
  • Put off taking social security
  • Work on yourself
  • Surround yourself with friends and family members

Q.5 What’s the most important thing to do when planning your finances?

Ans. The most crucial aspect of personal financial planning is creating and sticking to a budget; without it, nothing else is feasible. Living within or below your means is a similar idea because it frees up more cash for debt repayment, savings, and investment.

Q.6 Should my financial planning include investing?

Ans. Investing is essential for accumulating wealth through the power of compound interest. You are already investing if you follow the basics and contribute to a 401(k) at work or participate in a similar retirement plan.

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