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Financial Planning Steps

Steps for Financial Planning

Dynamics of financial planning

Financial independence is an integral part of today’s complex lives. In todays world of job insecurities & high inflation rates which erode the value of money, to be financially competent in present as well as future is of prime importance for every individual.

It is widely observed that most of the individuals spend their life in earning and saving but ignore the most important aspect of financial planning. The process of financial planning entails one to understand individual’s present and future earning ability, analyse future financial requirement or goals and developing a path to create wealth and achieve those financial goals. Secondly financial planning must reflect the ongoing changing markets and the changing needs and wants of individuals.

Why is financial planning important for everyone?

Financial planning not only helps in meeting the present and future goals but also deals with unforeseen emergencies of life. In a country like India where there is high inflation, rising prices erode the value of savings and only financial planning can save from such erosion. Diversification helps to harness the power of compounding and reduce the uncertainties arising due to volatile market scenario only because of financial planning.

Financial planning defines current financial state and financial goals

It is very important for an individual to clearly understand their current financial state as it gives them an idea about their earnings and expenses. This will reveal one’s annual cost of living and indicate the savings part (surplus money available for investment). After getting this idea, investor must analyse the financial needs and his goals which will help him to understand what they wish to attain. Goals of an investor includes buying a house, funding child education, planning for retirement or planning for marriage of son or daughter.

The process doesn't end in just identifying the needs and goals but also find out the resources and the time frame required to fulfil these goals. Any financial need or goal would translate into determining the tenure of the investment i.e. short-term (< 1 year), medium-term (1 - 5 years) and long-term (> 5 years).

To Analyse the Individual’s risk profile

To analyse an individual’s risk profile is an important component of financial planning as asset allocation in a portfolio depends on this aspect. It is important to remember that each asset class carries different type of risks and for any investment a certain amount of risk cannot be ignored. While investing in any asset class which offer higher returns, individual must analyse their own risk bearing capacities in terms of investment objective, time horizon, current income and age. For example an individual of over 40 years of age with a stable long term income source may look at investing a relatively higher portion of the portfolio into risky assets such as equities unlike an individual unlike someone of the same age but with a not-so-stable long term source of income.

Pick the right asset allocation mix

Traditionally, the three main asset classes are equities, fixed income (debt) and cash and equivalents. There are non-traditional asset classes such as real estate, gold, and commodities, to gain additional returns even though these assets carry additional risks compared to traditional assets. By allocating capital across several asset classes, the benefits of diversification can maximize gains and minimize the losses. After deciding upon different asset classes, individuals must develop an asset allocation plan which will determine the proportion of investments in each of the major asset classes. A right asset allocation means apportioning the investor's surplus across the various asset classes and their instruments based on the individuals' risk return profile. Mutual funds in India invest across most of the traditional as well as non-traditional investment classes and provide an ideal medium for investors, while also offering the benefit of professional management at low costs.


Given the ongoing market volatilities, it is important that individuals must have a disciplined approach to investments which can be acquired by following the above steps.

Mutual Fund investments are subject to market risk and the Investors should consider their investment objectives and risks carefully before investing & must read all scheme related document carefully

MF Invest India is registered with AMFI under ARN code: ARN144789

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