What is Financial Planning?

Due to ever changing technology, inflation and increasing disposable income, it’s need of the hour to do financial planning for everyone. So, I thought it’s right time to write on – What is financial planning.

In my last article, I wrote the secret to become a successful financial advisor.

The base of any financial decision starts with you first; be it saving, spending, budgeting, investing, or planning for future.

It starts with you and your goals.

In this post, I will explain what is financial planning in simple words.


What is Financial Planning


“Financial Planning is the process of meeting your life goals through a systematic and disciplined arrangement of your personal finances.”


Financial Planning 101

With the above definition, we realize three main things.

  1. Financial Planning is a Process
  2. It’s about Your Life Goals and,
  3. It’s about disciplined arrangement of your personal finances.

Let’s see the first step in this process.

What is financial planning

Financial Planning is a process consisting different steps. Look at the image below.

What is Financial Planning
What is Financial Planning

1.    Determine your current financial situation

You may be a salaried person, a professional or a businessman, check your current financial situation. Where are you now?

  • Do you have enough savings and investments to back your aspirations?
  • Is your salary enough to pursue your personal and financial aspirations?
  • Are you able to manage your home loan and personal loan responsibilities?

Ask these questions to yourself. Be very clear and honest with your current financial situation.

2.    Develop your financial goals

What financial goals you want to achieve?

  • Retire at 50?
  • Be debt free at 40?
  • Want to invest in a second home?
  • Want to go abroad for further studies?
  • Want to send your children abroad for further studies?
  • Daughter’s marriage?

The list is endless.

Where to start?

Start with important goals first, that can give you financial independence. How about being debt-free at 40? I know some people who are debt-free at 35.

It’s possible and it needs a disciplined and systematic planning.

3.    Identify alternative courses of action

What alternative actions you can take to achieve your financial goals?

I believe some actions like learning good saving habits, learning your relationship with money, living frugally and keeping positive mindset are some of the ways that help you achieve your financial goals.

4.    Evaluate alternatives

Consider your current life situation, your personal values and economic factors. Also assess risk and time value of money of each alternative.

Here, you should check different products available in market and select the best ones based on your need.

You may need to do some changes in your lifestyle so that you achieve your financial and life goals that are close to your heart.

5.    Create and implement your financial action plan

Once you take all the five steps mentioned above, you will get a clear idea about your financial goals and what you need to do to achieve them.

The key words here are implementation and action.

The plan remains on paper if you don’t implement it. So take the first step and rest will follow.

6.    Review and revise the financial plan

As you go and implement your financial plan, you should revise your plan periodically, every 6 months or whenever you achieve a milestone.

This step is the last step in the financial planning process.


How personal financial planning is different from corporate finance?


The jargon used are same but meaning is different.

For example, when you use the word ‘Net Worth’ in corporate finance, it’s about company’s capital plus reserves and surplus.

Likewise, a person’s net worth is his total assets minus total liabilities.

Can I create my own financial plan?

Yes. If you follow these steps and do a bit of calculation, you can create your own financial plan and you don’t need to hire any financial planner for this.

I hope after reading this article, you understood – what is financial planning.

Feel free to share your thoughts about financial planning with me in ‘Comments’ section below.

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