Previous post Financial Planning Part – I : An individual’s life cycle and financial planning talks about various phases of an individual’s life. And how an individual in each phase plays a different role starting from being a learner, to finally getting retired. We also talked about financial life of an individual, importance of savings and how financial planning plays a crucial role in building a life with less worry.

Thus, for each role an individual has different set of needs at every stage of life. These needs can be immediate needs (like food, shelter, clothing etc) or long term needs (like higher education for kids, retirement etc) . Almost all people work to meet these needs. Nature of work can be anything like – business or job, based on interest and qualification of person. In return of work done the person is usually paid some money. This money can be spent on immediate needs or saved for meeting future long term needs. Some of the most common needs and corresponding goals for most individuals are shown on the image below –

An individual or family can convert their needs into goals by – a) defining a time frame for fulfilling them and b) assigning a future monetary value to them. By undertaking these two steps they are doing goal setting process of financial planning. All goals set by an individual or family should be Specific, Measurable, Achievable, Realistic, and Timely (SMART). By setting goals, an individual or family is providing themselves with a target to aim for.

Financial goals can be subdivided into three groups depending on the duration available to meet each of them. The three types of goals are –

  1. Short term goals: An example of short term goal is buying an LCD TV set within next 6 months. This goal has a defined duration of 6 months. An individual or family cannot take any risk with money saved for this goal or else they will will not be able to meet this goal.
  2. Medium term goals: An example of medium term goal is buying a house within next 4 years for INR 50,00,000. Again this goal has a defined duration and a measurable sum of money to be used for purchase of house. An individual or family can take a few risks calculated risks with the savings for this medium term goal like putting this money into bank fixed deposits or conservative hybrid funds.
  3. Long term goals: An example of long term goal is planning for retirement after 15 year. For this goal an individual or family can invest into take risks based on their risk bearing capability calculated by doing risk profiling of the individual or family as they have 15 years of time to meet this goal.

Depending on the type of goal and duration available to meet each goal – each goal is assigned a risk rating. This rating along with risk profile of an individual helps in selecting a suitable financial product for meeting that goal.

Post goal setting, an individual needs to work on proper management of money to meet those goals over time. To do proper handling of money, any individual or family needs three different types of financial products. These three generic financial products are –

    1. Financial products enabling transactions – These products are used to handle funds needed to do transactions for immediate spending and for investing to commit money to resources required for future expenses. Cash is an example of a product enabling transactions for immediate spending while bank account is an example of financial product used to commit resources for future expenses.
    2. Financial products for meeting contingencies – Contingencies are unforeseen life events like death and disability or unemployment, lead to a loss of income. Some of these events require large commitment of funds which cannot be met from current income. Various types of insurances are example of financial products to meet contingencies.
    3. Financial products for wealth accumulation – All savings and investments should lead to creation of some wealth. Systematic investment into mutual fund is an example of financial product used for wealth accumulation.

Typically at any point in time, an individual or family will work on meeting multiple needs simultaneously and thus should have all three financial products. In a nutshell one may say there is:
          1. A need to save – for daily requirements.
          2. A need to insure – against uncertainties.
          3. A need to invest – for wealth creation.

Thus, we can say that – “Financial planning is a process through which one can chart a road map to meet expected and unforeseen needs in one’s life. It involves assessing one’s net worth, estimating future financial needs, and working towards meeting those needs through proper management of finances.”


In this article, we have introduced you to various needs of an individual, how they translate into financial goals. We also talked about different types of goals and generic financial products available to meet these goals. Hopefully this information should help you in building better understanding on the process of financial planning. For more information please feel free to reach out to us via email at – or by phone – 91-9515475381.

Next Article – Elements of financial planning & the challenges it fixes.

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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