www.kgandhi.anindia.

com

8 Easy Steps for Financial Planning

Financial Planning offers a coordinated and comprehensive approach in helping you to
achieve your personal and reasonable financial goals. Building, managing and preserving
wealth is a very important aspect of life. But it is not an easy task. Maybe you have recently
retired and are concerned about outliving your Savings. Maybe you are a baby boomer
trying to plan for a secure Retirement. Maybe you are part of the "Food generation", caring
for your own children at home while also caring for the needs of aging parents. Maybe you
are recently widowed or divorced with all of the difficulties that these life challenges bring.
Maybe you have accumulated substantial wealth and want to protect your assets from
lawsuits, spendthrift relatives, divorce or other potential threats not only to yourself but
also to your heirs. Fortunately, Financial Planners are available to assist you in the process of
developing a sound Financial Plan. Selecting appropriate investments is simply one element
in the formula for an effective financial plan that should also include retirement and Estate
Planning. An experienced financial planning team like ill help you in the following:

Identify your goals

Understand your current situation
Develop a plan that addresses your goals with your risk tolerance in mind
Implement and monitor the financial plan

We all know that making a Financial Plan plays an important role in wealth generation.
However, for some reason or the other we find excuses for not making one. If you have not
yet made a Financial Plan that charts your future earnings, expenses and returns from your
investments then perhaps it's about time you made one.

Here are eight easy steps that will help you make your financial plan.

Identify and list down your future needs/ objectives

Convert needs into financial goals
Make an understanding of your current financial state
Stage I of the financial plan: Risk planning
Stage II of financial plan: Core cash flow study
Determine an appropriate asset allocation strategy
Product selection and plan execution
Monitor and evaluate your financial plan

Identify and list down your future needs/ objectives

Each individual seeks to lead a better and a happier life. To lead such a life there are some
 www.kgandhi.anindia.com

needs and some wishes that need to be satisfied. Money is a medium through which such
needs and desires are fulfilled. Some of the common needs that most individuals would
have are:

Creating enough financial resources to lead a comfortable retired life

Providing for a child's education and marriage
Buying a dream home
Providing for medical emergencies, etc.

The first step in making a financial plan is, identifying the goals which have to be met. These
goals are the needs and the objectives of the individual. Clarity in these needs would be the
starting point to help an individual work out the journey on the financial road which needs
to be followed.

Convert needs into financial goals

Once the needs/ objectives have been identified, they need to be transformed into financial
goals. But how do we convert the needs into financial goals?

Two components are there in converting the needs into financial goals. First is to evaluate
and find out when you need to make withdrawals from your investments for each of the
needs/ objectives. Then you should estimate the amount of money needed in current value
to meet the objective/ need today. Then by using a suitable Inflation factor you can find out
what would be the amount of money needed to meet the objective/ need in future.

For example; Let us consider the need to create an Education Fund for your child which is
needed 15 years from now. Let us assume that the current cost of education today would
work out to around Rs 4 lakh. We can project what is the amount needed after 15 years for
your child by using a suitable inflation factor to the current cost of education assumed as Rs
4 lakh. Assuming that cost of education would rise at 7 per cent per annum over the next 15
years, the total amount required after 15 years would be around Rs 11.03 lakh.

Similarly you need to estimate the amount of money needed to meet all such objectives/
needs. Once you have all the values you need to plot it against a timeline. This is very easily
done by using spreadsheets. It will give you a broad idea about when and how much money
you would need during your life in future

Make an understanding of your current financial Position

To get clarity on your current financial position, it is necessary to create a family budget. As
part of this budget, you need to list down your income and expenses.
 www.kgandhi.anindia.com

Income should include the husband and wife's income as well as rental income if any
The expenses part should be split under monthly expenses and annual expenses
Under monthly expenses you should list down the regular monthly expenses like groceries,
phone bills, electricity, petrol, etc
Under the annual expenses you need to include non-regular expenses like school fees, car
insurance, vacation, etc

This allows you to get an idea of the pattern of cash outflows (expenses) during the year.
Accordingly you can plan to keep sufficient money liquid for the necessary expenses during
the course of the year. All Loan EMIs (equated monthly installments) paid must be kept
separate under the monthly expenses head, as after a finite number of years they will no
longer be part of your regular living expenses. The most important information that you get
from the above study is your current annual cost of living (that part of expenses which
supports your current lifestyle).

An analysis of the above figures would permit you to understand the amount of savings
(income less expenses) that you are left with on an average. This in turn will give you an idea
of surplus regular money available for investment. This is the savings that will take care of
you and your family when income from your work stops. Hence it is extremely important to
understand what is happening to your savings. A strategy to invest the savings in the most
suitable way is critical for you to meet your financial goals.

Stage I of the Financial Plan: Risk planning

The first component of the Financial Plan would cover the aspect of risk planning. The two
major risks are that of illness and death. The role of Insurance is to cover the financial risk. A
suitable Health Insurance cover is worked out after taking into account the situation of the
family and information about the availability of any cover from the employer. The next step
is to estimate the amount of life insurance cover required. Loss of income in case of death of
an earning member may put the rest of the family into financial distress (especially where
he/ she may be the primary bread winner).

The importance of insurance is to take care of this financial discomfort. The most
appropriate life Insurance cover for this is a term cover. Information on financial goals and
your current financial state, when suitably modified, becomes a base from which to work
towards estimating the amount of life insurance and the tenure of the cover. Once the risk
planning is in place the cash flows for long term Financial Planning are worked out.

Stage II of Financial Plan: Core Cash Flow Study

You now have the basic inputs needed to work on your Financial Plan. The needs/ objectives
have been transformed into financial goals. You know the amount of money and the time
 www.kgandhi.anindia.com

when it is required for each of your financial goals. These financial goals will be met through
creating financial resources by investing your savings.

You have a basic understanding of your current cash flow (income and expenses statement)
through creating a family budget. From this you can obtain an idea of your potential savings.
By projecting your income and expenses into the future you can get an idea of the kind of
savings you can have each year. By assuming that savings grow at different rates you would
get an idea of how your Investment pool would grow into the future. You will have to work
out at what rate of growth of your savings would all your financial objectives be met. If the
rate needed is very high then it gives you an idea that you may have to save and invest more
or alternatively sacrifice some financial goals. In case the return expected is very low, you
can explore the possibility of achieving financial freedom earlier in life. You can mix and
match and work out different scenarios and then finalize a plan that suits you most.

Determine an appropriate asset allocation strategy

Based on a projection of the estimates of long term cash flows done, you know the rate at
which you need to grow your investments. The financial plan thus lays the wide investment
parameters in terms of an asset allocation strategy. Different assets classes like Debt, Equity,
Real Estate, etc. grow at certain natural growth rates over the long term. You have to work
out an investment strategy to invest the saving across various asset classes in an appropriate
ratio so that you meet the targeted return as per the Financial Plan.

If a higher return is needed then accordingly a higher exposure to higher growth assets like
equities is needed. But here the risk also will be more. Discipline in maintaining the Asset
Allocation is the key to achieving success in the long term.

Product selection and Plan Execution

The question of Product Selection and Execution arise only after the Asset Allocation
strategy as per the financial plan. This strategy guides you on the allocation of money to
various asset classes (example: debt, equity, gold, etc). For each of the asset classes, suitable
investment options are evaluated. A thorough understanding of how different products
work and the costs associated with them is significant for this evaluation. The most suitable
product which will help you to meet the expected returns as estimated in the financial plan
is selected.

By growing the money at the estimated rate you would be able to build enough financial
resources to fulfill your objectives and needs in life. A lot of individuals invest into an
investment option without understanding its overall long term impact on their lives. Due to
this reason they may find out that they are left with insufficient financial resources during
their later years. They normally have to depend on someone or have to drastically trim
 www.kgandhi.anindia.com

down their lifestyle to lead a financially feasible life. Therefore it is extremely important for
people to evaluate before hand, the amount of financial resources they need to build up, in
order to lead a comfortable life post their working years.

Monitor and evaluate your financial plan

The success in Financial Planning is achieved only when all the financial goals are met.
Therefore financial planning does not end as soon as investments are made. It is a
continuous process where regular monitoring and periodic assessment is essential to ensure
that things are happening as per the plan. It is necessary to ensure that planned
contributions from your savings are happening towards your investments.

In addition to this the returns being generated by the investments must be monitored and
rebalancing of investments must be made as per the asset allocation strategy. Based on the
above evaluation the financial plan should be fine tuned if essential.

Adjustments to the Financial Plan may be required in certain scenarios. Any permanent
change in lifestyle over and above the estimated level would impact on your long term
financial situation. Likewise any major change in your existing situation, new member added
in the family or reduction in income due to one member of the family taking time off from
work to raise children would require a reworking of the Financial Plan.

Ask your query anything related to any Investment or any kind of Insurance of any company
Just visit our website www.kgandhi.anindia.com and get the best comparison and solution
and enjoy the tomorrow hassle free and paper free.

Advice on:

Insurance: Child Future Planning, Term Plan, Health, Whole life,Home Loan Insurance,
Pension Plan,Money Back ,Maternity, Tax Planning, Personal Accident, critical Care, Travel,
Burglary & Theft, House hold insurance, office insurance,Shopkeepars insurance, utensil
insurance, Car insurance ,Commercial vehicle ,etc….

Investment: ULIP Plans, Systematic Investment Plan, Mutual Funds. Post Office Scheme, Govt.
of India Bonds, Fixed Deposits etc……
 www.kgandhi.anindia.com

For Further Details kindly Contect :

Thanks and Regards,

Kirang Gandhi

Corporate Financial Planner

www.kgandhi.anindia.com

m-9271267305