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Financial Planning for Everyone - A Brief Guide

The key to living a stress-free life is taking control of your money through efficient financial planning. You may not have a six-figure income, but all you have to do is become a smart money-saver and in
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Written by

Abhishek Chakravarti
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Abhishek Chakravarti

BFSI Writer

Abhishek is a financial writer with over 6 years of experience in the BFSI sector. Prior to his current stint with Axis Max Life Insurance, he has worked with leading fintech startups. He specializes in writing about taxation and various investment products like ULIPs, retirement plans, guaranteed investment plans, mutual funds etc.

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Reviewed by

Sahil Rawal
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Sahil Rawal

BFSI Expert

Sahil Rawal is a digital & brand management specialist with over 10 years of experience in Financial Services Industry. Life insurance professional with expertise in digital marketing strategy, website content marketing and brand communication designed to increase brand awareness, drive engagement & sales.

What is Financial Planning?

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Financial Planning refers to a comprehensive plan of your long term or short term objectives for financial security. The purpose of financial planning is to form the foundation for a specific goal or destination in your life. With an abundance of investment options available such as mutual funds, Public Provident Fund, Fixed Deposits, Unit Linked Insurance Plans, you may end up getting confused. Below is a detailed guide to successful financial planning.

How to do Financial Planning Successfully?

Now that you know what is financial planning, you should either do it yourself or hire an expert financial advisor. Financial planning is something everybody should learn about for a better future. It generally includes the following steps for financial planning:

Establish a Goal

Ask yourself questions regarding what kind of future you are aiming for or what are your immediate or long-term financial goals for efficient financial planning. Many people often begin to save or invest with no specific goal in mind and end up spending the amount.

The purpose of defining a destination is to get clarity of thought and start your financial planning with no doubts in mind. The aim of establishing a goal is to get answers to your investment objectives, personal finance management and insurance needs.

Gather Relevant Information

This step is crucial to your financial planning as it involves getting the right knowledge about various strategies and financial instruments that will help you accomplish your goals. The choice of investment affects financial planning as the product determines the future of your personal finance.

For instance, if you are planning for your child’s higher education, analyze your annual income, future needs and then research about the investment options available for the same. It is wise to have an idea of your expectations to make a prudent decision.
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Develop the Plan

Developing the plan means devising alternative solutions that will help you achieve your goals through financial planning. With a variety of options to explore, make sure you choose an investment that aligns with your current needs and future requirements. Your risk appetite is also a crucial aspect to consider while making a financial plan.

Implement Financial Planning

Put the plan to work. This might be the most challenging step in financial planning. It requires discipline and the right mindset to begin investing in your plan. Do not let negative thoughts of failure distract you. You can also take the help of financial advisors for additional guidance. You do not need to start by making a high-level of investments or savings; begin by making small contributions.

What are the Elements of Financial Planning?

You, as an investor, may be in a dilemma when it comes to finding the right investment strategy. Financial planning can be tricky if you are not aware of the elements that you can opt for making investments. Let us simplify the options for you:

Mutual Funds

Mutual funds are an excellent option to consider for first-time investors. As you can also avail the services of a professional fund manager for financial planning in this scheme. You can opt for either equity mutual funds or debt funds according to your risk tolerance. Investors with high-risk appetite usually go for equity funds since they offer higher returns. Whereas, debt funds are for those who are looking for highly liquid investments.

Mutual funds are market-linked investments that invest your money in various instruments including, stocks, money market funds and more. Mutual funds can prove to be a great addition to your financial planning.

Public Provident Fund (PPF)

Financial planning requires you to broaden your investment portfolio as it also helps in personal finance management. A public provident fund is a good investment option if you’re looking for tax rebates. It is a Government-backed investment scheme which allows you to enjoy risk-free returns. The maturity period under the plan is 15 years, but you can make partial withdrawals after 6 years.

You can claim deductions for the amount invested under Section 80C of the Income Tax Act, 1961. The principal amount, interest earned and maturity amount is exempt from tax. Before making an investment decision, make sure to review your financial planning time to time.
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Unit Linked Insurance Plans (ULIPs)

Financial planning should include the mix of both investment and insurance for the overall security of you and your family. A ULIP plan is the ideal choice for such a combination. A part of the premium goes towards the insurance policy, and the rest is invested in equity, debt or hybrid mutual fund as per your convenience. It is the best financial instrument for those who are looking for a life cover along with earning returns.

Also Read: Benefits of ULIPs

We, at Axis Max Life Insurance, offer ULIPs to provide you growth with financial protection as well. It is a flexible approach to financial planning that always enables you to protect your family while saving for their future.

National Pension Scheme (NPS)

Financial planning goes a long way to provide you with security and peace of mind, even in your retirement years. It is, therefore, crucial that you manage your personal finance wisely from a young age itself. National Pension Scheme is a Government based retirement scheme that also allows investors to invest in various market-linked plans such as equities and debt.

You can make partial withdrawals of up to 25% after three years of opening the account. The national pension scheme also gives tax benefits under Section 80CCD(1B).

Also Read: What is NPS?

Let us summarize the above for you to make the understanding simpler:

Type of Plan Returns Offered Tax Benefits Who Should Invest
Mutual Funds Market-Linked Equity Linked Savings Scheme Tax-free under Section 80 C Moderate to high-risk tolerance
Public Provident Fund 7.1%* Falls under EEE (Exempt-Exempt-Exempt) category Indian citizens with long term investment goals
Unit Linked Insurance Plan Varies on the investor’s portfolio Tax deduction under Section 80C Those looking for insurance cover and wealth creation
National Pension Scheme Regulated Market Based Returns Tax deduction under Section 80C For retirement investment plans

*As on December 2023

Tips for Better Financial Planning

Keep the following tips in mind for an efficient financial planning:

Determining Cashflow

For efficient financial planning, you need to know where your money is going every month. Keeping track of your spending and making notes can help you in this case. Checking your account and credit card balance is one way to ascertain the history of your spending. It enables you to be conscious of any unnecessary withdrawals.

Creating an Emergency Fund

Once you have mapped your saving capacity, it is necessary to set up an emergency fund. People often tend to forget doing so as they do not think about the uncertainties of life that can happen anytime. An emergency fund refers to the money set aside for times of crisis. It will help you avoid borrowing when cash is required. It is ideal to set aside an amount during financial planning.

Eliminating Debt

After you have created an emergency fund, it is advisable to clear all your current or past debts. Pay off each debt regardless of the amount as it, in turn, eliminates your monthly payments, thus increasing your regular cash inflow. Financial planning is all about making yourself independent of any monetary burden with organized personal finance.
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Cutting on Expenses

Having a budget in place can do miracles to your financial planning and maintain your personal finance also. You start by marking permanent expenses and those which you can easily cut on, such as recreational shopping. After categorizing your expenses, make reductions in your spending budget and direct yourself into saving and investing.

Considering your Priorities

The motive behind financial planning is to achieve your life goals. Whether it is sending your child off to college, buying a new home or leaving a legacy, it requires you to stick to your financial planning. No one can know your priorities better than you, so, make a detailed plan with suitable investment options.

Make Financial Planning a Success

We spend all our lives planning for future events. But what about making the future safe and secure. In the hustle to achieve every milestone in life, make sure you do not forget to put financial protection first. Having adequate insurance is as necessary as investing in schemes for wealth creation. Now that you know what is financial planning and what does it mean, you should start with your financial plan to meet the financial goals.

We, at Axis Max Life Insurance, offer a variety of life insurance plans, including Unit linked life insurance plan (ULIP plan), term insurance and other life insurance policies to provide you and your loved ones with the ultimate protection as per financial suitability, which also helps you to save tax. You can now also use premium calculators online to ascertain the monthly premium payments to be made for better financial planning.

So, remember that financial planning with clearly defined goals and discipline has the highest chance of a successful outcome.

 ARN: Dec23/Bg/04L

Sources:

www.thebalance.com/the-6-steps-of-financial-planning-2466498

www.moneycontrol.com/planning_desk/fininvoption.php?classic=true#8

npscra.nsdl.co.in/all-faq-about-nps.php

npscra.nsdl.co.in/tax-benefits-under-nps.php

www.investopedia.com/terms/f/financial_plan.asp

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