As an individual moves through various stages in the life cycle, from young earner towards middle ages and then towards retirement, the approach towards life undergoes a change. With passage of time, one may become more careful in handling of money in order to secure the future of their loved ones. Financial planning process that helps individuals and family with handling of money by taking into account their current and future needs, their risk profile and current income to create a road map to meet various anticipated and unanticipated needs.

Challenges addressed by Financial planning

Financial planning is not a new discipline. It was practiced in a much simpler form by our parents. However with changing times challenges faced by an individual or family are quite different and more complex today than ever before. Some of the challenges addressed by undertaking proper financial planning are listed below –

    1. Disintegration of the joint family – Young people in their 20s and 30s are moving to different cities away from the joint family due to various reasons (like getting job in other city). This is given way to nuclear families, consisting of father, mother and children. Now this nuclear family has to take care of oneself and their immediate needs. This calls for a lot of proper planning. Some support from a professional financial planner really helps.
    2. Changing lifestyles – Life style changes impact how people eat, dress, communicate and live their day-to-day lives. The paces of these changes is increasing with introduction of media – like films, television shows, internet and more recently social applications like Facebook, Instagram and many more. Now instant gratification is the order of the day. Proper financial planning brings awareness and self-discipline to help plan expenditure so as to succeed in both: maintaining present standard of living and in meeting future goals.
    3. Inflation – Inflation is a rise in level of prices of goods and services in an economy over a period of time. This leads to a fall in the value of money. Inflation plays a havoc when your income is not increasing while your expenses continue to rise slowly. Proper financial planning helps in ensuring that one is equipped to deal with inflation, especially in later years.
    4. Unforeseen Events – Financial planning helps individuals and families meet a number of needs that occur due to unexpected events like medical emergencies or other contingencies that an individual or families will face in life. Professional financial planner can help in reducing the financial pain of an individual or family due to these unforeseen events.
    5. Multiple investment choices – Earlier, there were limited investment options available to our parents and they used to saving largely in bank deposits, postal savings schemes and some other fixed income instruments. However today there are multiple investment avenues with many financial products available to cater to various needs of an individual or family. Thus selection of correct financial product fulfilling the needs of an individual or family can be a big task in itself. Proper financial planning with professional planner can help with product selection and asset allocation.
    6. Taxation – Proper financial planning with a professional can help individual and families in managing their tax liability by doing proper tax planning.

To put it in a nutshell financial planning involves undertaking a 360 degrees review of money management of individual or family. This review if done properly by a competent financial planner will generate valuable insights for the individual or family and help them in proper handle their money.

Key Elements of Financial planning

Financial planning is an iterative process which moves from wealth protection to creation and finally towards distribution. Graphically it looks something like this –

A financial planner as part of financial planning should cover following aspects for the individual or family –

  • Income-Expense Analysis – Under income-expense analysis, a planner builds understanding of your income streams and expense headers using at least past six months of data. This information helps in identifying your consumption pattern and your savings potential.
  • Debt Analysis – Under debt analysis, the planner tries to understand what portion of your monthly income goes towards repayment of loans. It also looks into various type of loans you have and can they be optimized to bring down monthly instalments or reduce loan interest rates.
  • Networth Details – In a nutshell, your net worth is really everything you own of significance (your assets) minus what you owe in debts (your liabilities). It is a measure of your financial health. Every financial move you make should be aimed at either increasing assets, or decreasing liabilities. A planner will calculate your current Networth to define your starting point clearly.
  • Risk Profile – A risk profile is an evaluation of an individual’s or family’s willingness and ability to take risks. It identifies the acceptable level of loss an individual or family is mentally prepared to handle peacefully. Investment portfolios for individuals or family are build according to their risk profile.
  • Identify Goals – Goal analysis helps in converting various needs of an individual or family into short, medium and long term goals. All goals defined for a family should be Specific, Measurable, Actionable, Realistic, and Time bound (SMART).
  • Investment planning – Investment planning is the core of financial planning, it begins once an individual or family is clear about their financial goals. It involves matching their goals with their financial resources. Initially a planner will look at –
      • Wealth protection by creating provisions for emergency funds and define insurance requirements for individual and family.
      • Wealth creating by assigning financial resources to different investments in cash, equities, bonds and land.
  • Tax Planning – Tax analysis is the analysis of a financial plan from tax perspective to ensure tax efficiency. This ensures that all elements of the financial plan work together in most tax efficient manner. Planner will ensure tax efficiency at all time while helping individual or families with their investments.
  • Immediate action Items – Immediate action items  talks about steps to be undertaken by an individual or family to put financial plan to work. Once financial planning exercise is complete a planner will have a few action items for the individual or family.

When to start financial planning? 

Ideally, financial planning should start the moment you earn your first salary, as there is absolutely nothing stopping an individual or family from having to financial plan. Also remember that the longer one stays invested higher is the impact of compounding. Meaning that one’s investments will multiply more with time. Hence it is never too early or too late to get started. 

Further, financial planning is not just for the wealthy individuals. Financial planning is for everyone as it helps individuals and families in – achieving their financial goals by following a disciplined approach. It begins with setting up of goals and by embarking on dedicated savings into various  investment vehicles according to one’s risk taking appetite. An unplanned, impulsive approach to financial planning is one of the prime causes of financial distress that affects individuals. 


In this article, we have introduced you to challenges addressed by financial planning for an individual or family and basics of financial planning process. We also explained that financial planning starts the moment one starts handling money and talked about various items of a financial plan. Hopefully this information should help you in getting started with financial planning. For more information please feel free to reach out to us via email at – or by phone – 91-9515475381. 

Next Article – Financial Planner : Their Challenges, Role and Responsibilities

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any entity prior to publication.

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