A Guide To Proper Financial Planning For Beginners


“By failing to plan, you are planning to fail.” 

Someone rightly pointed out the importance of planning. The same quote goes for financial planning as well.

Financial Planning

Financial planning refers to planning the finances you acquire, monetary goals, expenditure, funding, etc., and taking necessary steps to beat inflation, support retirement, and achieve both short and long-term goals. It is the process of saving money and making a careful and considerate investment in the right place and at the right time

Importance of Proper Finance Planning:

  • There are financial goals and responsibilities for every person, which can be met with the right kind of financial planning.
  • It is crucial to beat inflation or the increase in the costs of the products, with time. Inflation can erode the value of money and is to be beaten using the right financial planning.
  • Successful financial planning is necessary in the times of emergency. Maintaining a contingency fund is important to tackle any health or other such sudden requirements.
  • Financial planning allows you to learn to manage debts and cash flow well.
  • It helps to keep track of your budgets and allows you to save and spend efficiently.
  • Inefficient financial products can be removed from your portfolio, and it can be made attractive and diverse with the help of financial planning.

Financial Planning

  • Diversified asset allocation can help to manage future financial risks.
  • The right financial planning helps you to invest in term insurance and secures the future of your family.
  • Financial planning helps to have a sense of control.
  • It creates discipline in the aspect of money management.
  • The planning process gives you a better insight into how much would be enough for monthly and yearly expenses.
  • Financial planning also helps to eliminate worry and gives mental peace as well as confidence.

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Guidelines For Proper Financial Planning

            There are three key aspects of financial planning. Based on these, it is better to create a plan. They are:

  1. Creation of wealth.
  2. Protecting yourself against all the possible risks.
  3. Transmission of wealth and liabilities.


            Financial planning is like a pyramid with the management of risks (like health insurance, risk cover, etc.) laying at the bottom of it. The layer above the management of risk lies the cash flow planning, which ensures the constant cash flow. The layer above it is of the housing needs. The topmost layers of the pyramid must be retirement planning, healthcare planning, tax reforms, and goals or dreams. It is a financial version of Maslow’s hierarchy of needs.

            There are three necessary steps to properly manage finance. They are: creating a budget, setting savings goals, and taking your debts. These steps are the stepping stones to full-fledged financial planning. These necessary steps taken alone can have a positive and significant impact on your budget and financial future. These should be diligently followed while creating a budget. Building savings goals will be more manageable after creating a budget. The Japanese use a method called “Kakeibo” which is a household account book. It is used while writing down income and expenses. It tracks the earnings and spending to evaluate unnecessary expenditures. This method improves savings.

Attending to the needs rather than wants by following them can save a lot of money. Savings goals can help to build emergency funds, which will avoid falling into debt. This will help to avoid spending extra money. Savings goals can help to meet the long-term goals of the future. Tackling debts can be done if new obligations are avoided. Managing mortgages and savings go hand in hand. These necessary steps are easy to be followed by every person, without the help of any financial advisor, and is suitable for people of all age groups and income brackets.

Financial Planning

                       Personal financial planning can be done by taking financial health checkup to understand your financial situation. Assess your future needs and realise how much risk you can afford (risk appetite).

You can be your financial planner by jotting down expenditure and earnings. By doing that, you can see the surplus. Out of the excess, you can invest a part of it in any form. It can even be a simple SIP (Small Investment Plan) or Recurring Deposit (RD). Investments are also essential to acquire tax benefits. List down your liabilities and assets and then, subtract your assets from liabilities. Several apps like “mint”, “buyhatke!” or even a simple excel sheet is enough for this listing down and analysis.

Prioritize the important activities in your life. This can be done by differentiating your needs from your goals. Financial goals are to be divided into immediate goals, intermediate and long term goals.

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One must take term insurance or life insurance to secure the family from an untimely demise. For example, A thirty-year-old male, non-smoker can get a cover of one-crore by paying nearly nine hundred to one thousand per month. Check the claim settlement ratio of the company before investing in term insurance. The amount of insurance to be taken can be calculated by evaluating the sum generated after investment, the estimated inflation, and the needs of the family. It is always better to start investing in term plans early. The period till the retirement age will be the best to choose for before investing in life insurance. You must select simple add-ons or riders.


Investing in ULIP (Unit Linked Insurance Plan) is one of the best choices in financial planning. It is trendy. ULIP is a term insurance plan which combines the returns of the stock market. People acquire the benefit of life insurance along with some amount of the invested money. Buying insurance online is more beneficial as it is cheaper without giving extra money to the policy advisors. Websites that compare the insurance plans come in handy while investing in them. A few examples of such sites are: “bank bazaar”, “policy bazaar”, “My Insurance Club.Com”.

Investing in health insurance is a small price to pay to protect your health. It can avert the cost of health problems and will prevent extra debt for the purpose. 

Mutual funds are perfect vehicles for beginner investors. Investments as little as one-thousand rupees per month. Buying and withdrawing a mutual fund investment is extremely easy. Companies sell mutual funds like the Net Asset Value (NAV), which makes it just like a stock. There are different types of mutual funds:

1. The equity funds (simple and focus on stocks which is suitable for young investors)

2. Balanced funds (gives a mix of equity and debt)

3. Debt funds (we get a guaranteed fixed return every year and suitable for people who do not have the high-risk appetite and are nearing retirement)

4. Exchange-traded funds (tracks index like NIFTY and is similar to purchasing a share).

Financial Planning
These steps mentioned above are suitable for all types of people with any income level and mainly for beginners. These steps ensure simple and effective financial planning.

            Warren Buffett is an American businessperson. As per his recommendation around monetary arranging and ventures, he expressed never to place all your eggs in a separate container. The eggs are an allegory for cash and investments. The crate symbolizes a source or a solitary sort of venture. His citation intends to have a differentiated portfolio while investing. It is ideal for putting resources into numerous structures like common assets, stocks, term plans, land, and so on. He additionally intends to state that one should design and make enhanced sources of pay for monetary stability. Having a diversified portfolio is an essential part of financial planning as it can wether your investments from any loss. Investing the total amount in one kind of investment is not ideal. Investing in stocks, term plans, mutual funds, etc. can help in making the amount higher and act as risk proof.  

                        The earlier you start, the better it is. A person who starts investing just a few years earlier can end up being many times wealthier. The amount would be much more than they would have if they just started investing. The age of twenties is the best time to start investing. The ways to begin in the twenties are:
  • Learn about different ways in which you can invest your money in, with the current budget.
  • Clear student loans if any. As the debts go on increasing exponentially, it is always better to clear off the educational loans.
  • Focus on the big three. There are three types of investments, which created many billionaires. They are businesses, stocks, and real estate. Start setting financial goals earlier and work towards them.
  • You are your biggest financial asset. Investing in you and your skills which would be useful is the biggest investment at this age.

Financial Planning

  • Start saving for your emergency fund. Try to put away the expense of nearly six months. 
  • Try to take advantage of the free time by taking up time to earn through your hobbies and part-time working.
  • It is important to not let your credit build. Paying credit card payments on time helps to earn a better credit score and save a lot of money.
  • People in young or emerging adulthood tend to spend carelessly due to sudden financial independence. Try and avoid this.
  • Buy liabilities like a car, mostly with half of your annual income.
  • Remember to start saving for your retirement. Investing just a minimal amount every month in the recurring deposits earns in crores.
           Working years are the most important for financial planning. It is ideal for planning all the investments and savings during the time of earning.

                        Increase your financial literacy. Everything involves money. When money is important, it becomes essential to avoid pitfalls and understand financial planning. Financial literacy includes the knowledge of different types of investment, risks, and advantages involved in the investments. Also, the difference between wants and needs, money management, understanding bills. Financial literacy is a crucial aspect of financial planning, as it helps every financial decision. It also helps to protect oneself from the threats of thefts and money laundering or cheating. According to the famous Benjamin Franklin, knowledge is the best investment that pays the highest interest. Hence, having enough understanding of the vital part of financial planning.

Financial Planning

            Tax planning and financial planning are interrelatable. It alludes to keeping all the cash you can get by law. Taxes are among the greatest costs. Arranging monetary exercises and taking the assistance of tax advisors would assist with sparing expenses. Picking ventures with tax breaks and tax proficient portfolio is the best for money related arranging. The cash set aside on taxes can again be contributed. Short-term capital gains are charged at higher tax rates. Examples of it are junk bonds and short-term benefits. They charge a lower tax rate for long-term capital gains. Instances of it are Dividends and additions held for a more extended timeframe.

Momentary capital gains, junk bonds, and varied stocks are tax-inefficient. Long-term capital gains, convertible bonds, and regular stocks are generally tax-efficient. If you have added to tax-inefficient investments, hold them in tax-deferred accounts like Individual Retirement Accounts (IRA). In that manner, one can save taxes.

            In an ideal budgeting portfolio, you can manage money using a 50/30/20 rule. Fifty per cent of finance is permissible for needs like groceries, housing, health insurance, utilities, etc. Thirty per cent can go to wants, like shopping, dining out, hobbies, and entertainment, etc. It’s important to allow twenty per cent to save and pay a debt. Beginners in financial planning can practice 50/30/20.


            One needs to manage finances well throughout life, to lead a comfortable and stable lifestyle. Proper planning helps us cope with different situations offered by life with confidence. The suggestions provided above can help in the financial planning of beginners. The same holds true for lazy planners, all economic sections of people, and people who started their careers recently. These recommendations will help to use the hard-earned money wisely. Go ahead and start planning now! Happy planning! 






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