• Manu Nedunkandathil, CFP

Financial Planning

Updated: Aug 20, 2021



What is Financial Planning?

Financial planning is the process of meeting your life goals through proper management of your finances. Life goals can be buying your dream home, funding your children's education, a dream vacation, buying your dream car, building a retirement corpus, etc. It is a six-step process starting with collection and evaluation of data, identifying life goals, formulating a plan of action to meet those goals, implementing the plan, and periodic review of the same.


Why is Financial Planning important?

Failing to plan is planning to fail. Given the fact that we have a limited time in our life span to earn money and create wealth, it becomes very important that the investible surplus is judiciously invested. Financial planning helps in understanding your present and future cash flows. It not only helps in ideal asset allocation based on your specific needs but also ensures that the future cash flows are managed to meet your requirements in time. Further, it helps you in being tax efficient with your investments. And finally, it brings a sense of safety and security.


"Give me six hours to chop down a tree and I will spend first four hours sharpening the axe"

Abraham Lincoln


Can you do Financial Planning yourself?

The answer is yes. You can do your own financial planning provided you have the necessary skill sets and expertise in certain areas of finance. You should be able to judge your own risk appetite and be able to manage your investment portfolio to meet your requirements.


How can a Financial Planner help you?

You may want to do things on your own, but sometimes seeking the help of a professional financial planner/ advisor has its own advantages. A professional financial planner is either a Certified Financial Planner (CFP) who is certified by Financial Planning Standards Board India (FPSB) or a Registered Investment Advisor (RIA) registered with SEBI.


A professional being an outsider will be able to evaluate the situation without any prejudices and personal biases you may have. He will be objective in his decisions.


A professional financial planner who interacts with markets and client's financial behaviour day in and day out is better placed to handle the market volatility and your financial behaviour. Also, he is trained and experienced in custom building a portfolio suited to your risk appetite and expected returns based on your goal time frames.

He can assist you in understanding the effect of one particular financial decision on your other life goals and guide you accordingly. Further, he can assist you in prioritising your goals and give you a realistic picture of your financial health. With his unbiased suggestion on financial products, he will be able to guide you in the right direction to achieve your life goals.


How can you make the Financial Plan work for you?

Since you are at the focal point of financial planning, it is very important that you participate in the entire process wholeheartedly. No financial plan can be a success without your participation. A few things that you must keep in mind are as follows: -

  • Start Early: - You have a limited time to earn and create wealth to meet your life goals. Starting early will help you destress your investment journey. Remember, climbing a steeper slope is far more difficult than climbing a gentle slope.

  • Define Quantifiable Goals: - This means the goal defined should be measurable in terms of cost and time. For example, you want to buy an apartment. You must be able to define the amount that is required in today's terms and the time i.e. no. of years that you have to meet the goal.

  • Be Realistic in Defining Goals: -While defining a goal, you must also consider your current and future cash flows. These cash flows must be able to justify the goal. If the goals cannot be backed by sufficient investments towards it, then it will only be a dream and never will become a reality.

  • Have Realistic Expectations: - You must not have too high expectations on returns from your investment. Being realistic with the expected returns will help you make the right decisions w.r.t your investments. It will also help you avoid any disappointments.

  • Implement the Plan: - A plan is only a dream without action. The plan must be followed up by action to realise the goals. You must put the plan into action immediately and ensure disciplined adherence to it.

  • Periodic Review: - Personal finance is essentially dynamic in nature. Hence, you must carry out a periodic review of the plan. It not only ensures that things are moving in the right direction but also gives a heads up in case the plan is off track. This enables you to take timely corrective measures for a course correction. This will ensure timely realisation of your life goals providing you with the happiness, safety and security that you need the most.

To summarise, financial planning is a must before setting out on your investment journey. People generally look at the product and the returns it generates in isolation, rather than looking at whether the product is suitable to meet life goals.


Remember, investing without a plan is like setting out to sail without charting a course for the voyage. You will definitely be sailing but will never reach your destination. So plan you must. After all, life is too short to leave things to chance, Isn't it?


" If you don't know where you are going, you'll end up someplace else."

Yogi Berra



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