What Is Financial Planning? A Beginner’s Guide

Most People have financial goals. You may want to buy a car, Builds a Emergency fund, nut a home, start side hustle or business and prepare for retirement.

Having a goal is first step. you also need a think how to achieve that goal.

here is financial planning is important.

In Simple word, Financial planning is the process of creating a plan for your money to achicve your financial goals.

It includes understanding your current situation, what step taken over time to reach a future goals.

Financial Planning is not only for high income or wealthy person . Anyone with normal salry can do financial planning for there future financial goals in life.

let dive into article of financial planning with beginner friendly. to easily you can create your own Simple and understand financial planning.

What Is Financial Planning?

Financial Planning is a process of managing your money for future purpose or goals.

For example, you want a build your emergency funds let say 1 lakh for safe fund.

now you have give yourself target or identify how much i can save montnhy basic so that i can reach my target over peroid of time.

keep the smaller steps for easily to do without compromise in other expense or life of living.

I think ₹5000 every month is good amount and track your progress and review it if it is necessary with your situation.

Main purpose fo financial planning is to have clear direction of your money and use without any guilt in spending life.

Why Is Financial Planning Important?

Every one knows money is solve many problems of our life. but without planning of your money is like you running behind something that not have any direction where to go.

Here there some financial planning way to gives you help create it.

1. Give Your money a Purpose

When you receive a salary or big payment from selling a asset anything like this you have many choices to spend it.

You can spend online or invest MFs and repay your debt or alloacate for future goals.

Example

• Part of your money on your monthy expense
• Repay of your debt
• Build a emergency funds
• Invest in Stockmarket or bonds.
• allocate in sparate account for future financial goals.

2. It Helps You Set Clear Financial Goals

Financial Goals is something to do, expirence or buy thing which require of money.

Example:

• Build a Emergency fund
• Buy a Car
• set child education fund
• Buying home
• Retirement fund

Financial planning have clear and exact goals.

I want some money in my saving. there is no define of “some money”.

I want ₹1 lakh money for emergency fund. I will save ₹5000 every to achieve this goals.

3. It Helps You Understand Your Current You Financial Situation

Before a Create financial planning you have understand your current situation of your financial.

Example:

• Your Income
• Your Expense
• Your short term goals
• How much saving do have right now
• Your debt situation
• Your financial Responsibiliity

Current situation is your foundation of your financial planning.

The 5 Basic Steps of Financial Planning

Financial Planning does not nee to be complecated.

Beginner Cand start with this 5 simple steps:

Step 1: Udnerstand Your Current Financial Situation

write down your basic financial situation.

Example

Income

How much money do you earn every month?

Expenses

How much money goes to necessary or personal expenses?

Saving

How much Money do i have in my saving?

Debt

what amount of debt i have in total and which interest have in my every loan and how much EMIs i have pay every monthy?

Step 2: Set Your Financial Goals

Your Financial goals divided into different Time Periods

Short-Term Goals

Goals that requires want in next month or before next 6 month

• buying phone
• build emergency fund
• Pay off your tiny debt

Medium-Term Goals

Goal to completes in 6 -12 months of your planning period of time.

• Starting a business
• Paying tuition Fees
• Buying a Vehicle

Long-Term Goals

Goal requires more than years like 2- 10 years.

• Buying a House
• Children Education
• Retirement planning

Step 3: Calculate What You Need

Once you decided your goals, estimated your goals money how much it required to achive this money.

Example

let say You required a Emregency Fund of 1 Lakhs for a year.

Now tell yourself and decide how much money you can keep a aside without any change in your other expense.

Start with with small amount like 5000 every month before spending on other essential or personal expenses.

Your Every month plan can change as per income circumstance of very month. Just by create a plan is not right direction but excueate every month save regularly is more important to have it.

Step 4: Create an Action Plan

Now it’s time to do it in action regularly

Example

Build a Emergency Plan of 1 lakh

Action Plan:

• Save Regular amount every month
• Track of Progress
• Save more if get extra money like bonus, or money from parents grandparents.
• Avoid spending from save for emergency fund
• avoid unnecessary purchase

Every person have different exact plan to achieve it.

Important thing is to move from

I want to save some day

rather than say

i will save small amount every month work for it.

Step 5: Review and Update Your Plan

Financial Plan is not something you just create it and not looking at again for action.

situation may change over peroid of time.

Example

• Increase in income
• Increase in expense
• Add a new respinsibility
• You may achive first goal and another requires more money than last one.

Financial Plan shouls be flexible enough to contiue your financial goal as change in your life.

Review your plan regulary can help to adjustment of with your life.

What Areas can Be Included in financial Plan?

Income Planning

How much money comes to your pocket every money and plan your income before it’s comes to your pocket.

Expense Planning

Understanding and mange your regulary expenses.

Saving Planning

Automate your saving by automaticaly transfer saving into your saving account or cash out and put it give it to your mother for future emergency situation.

Debt Planning

Identify your current debt,EMIs and plan your repayment of every month.

Investment Planning

Learning about investing to where invest instrument like MFs, stock market, golds and bonds.

Financial Protection

Thinking about Financial risk, emergency portection and good insurance needs.

Goal Planning

Goal clear planned into short-term,medium-term and long-term goals planning.

Financial Planning Is Personal

There is no such same financial plan for everyone.

Example

Two People have same salary and may have different situation.

First Person have:

• Have family repsonsilbilty
• Pay Rent
• Having multiple loan EMIs
• Sned money to home

Second Person Have:

• Live with family
• Lower expense
• Fewer financial repsonsbility

Financial planning may change by situation

Financial Planning should be consider like:

• income
• expense
• saving
• insuarance
• parent dpendence
• goals
• debts
• time peroid

this is called Personal Financial Planning.

Common Mistakes to Avoid When Financial Planning

Beginners may make common Mistakes.

1. Having no Clear Goal

It is difficult to plan or take action that you do not know how much money to have achieve your goals.

2. Create a Uncrealistic Plan

Plan your current situation of financial.

saving should be realistic so that you can save regularly and consistently and easy to maintain.

3. Ignoring Unexpected Expenses

Life can change, create a financial planning with flexible so it can adjust by money and you still stick to your plan that you created you planning.

4. Trying to achieve Everything at Once

You may have many financial goals

Start with most important priorties trying into action to achieve toward goals.

5. Never Reviewing your Plan

Your fiancial Situation required review your plan regular or required may change to achive it.

FAQs

What is Financial Planning?

Financial planning is the process of creating a plan for your money to achicve your financial goals.

What is the first step in Financial planning?

The First step to undertanding your financial Situation,including your income,expense and debt financial repsonsilbity.

Is Financial Planning Only For Wealthy People?

NO. Financial Planning is for everyperson with lower income to higher income. Mainly understanding your money and setting goals as per income level.

How Often should I review my financial Plan?

you can review regular time and when you may major change in income,expense, financial goals.

Do I need to Know about investing to start financial Planning?

No. Beginner can start with basic concept likr income, expense,budgeting and manage debt. Investment is knowledge can be learn gradually.

ink this article to:

• What Is Money? Meaning and Importance of Money
• What is Financial Literacy?
• Financial Literacy Vs Financial Education : What Is the Difference?
• What Are The 5 Main Areas of Personal Finance?
• What is Income?
• What is an Expense?
• What is Budget?
• What is Saving?
• What is Inflation?
• What is Investing?