Maximize Your Money Potential with Personal Financial Planning

December 5, 2023
Personal Financial Planning

Table of Contents

“Finance is not merely about making money. It’s about achieving our deep goals and protecting the fruits of our labour. It’s about stewardship and, therefore, about achieving the good society.” – Robert J. Shiller

If at the end of every month, you check your bank balance and wonder where the money flew away; then this is your sign to know about “Personal Finance Planning”. According to the records, 76% of the adult Indian population is yet to improve their financial concepts. This clearly shows how direly people need to know about personal finance and its importance. So, let’s know what financial planning is and how you can start it, to save more and live merrier.

What is Personal Financial Planning?

Personal financial planning is an ongoing process that tries to assist people in making prudent financial choices so they can attain their life goals. With or without obstacles in the way, a financial plan typically offers a path for accomplishing your life goals in a systematic and planned manner. The most crucial aspects of the financial definition include creating a budget, setting up emergency funds, paying off debt, and focusing on long-term objectives.

Elements of Personal Financial Planning

Furthermore, personal financial planning might be difficult if you are unaware of the aspects you can use to make investments. Therefore, you should be aware of financial planning elements.


Without this you can’t even think about further elements. Having a consistent cash inflow is crucial to have good financial stability. Your income will become the starting point of your personal budget, from this you are going to allocate the amount towards your expenses, savings, emergency funds, retirement money etc. The income you bring directly affects your personal finance.


Emergencies can come at any time in life and for that, you need to be prepared, at least financially. To avoid financial issues in such situations it is recommended that you put away an amount equivalent to your salary of 6-12 months. This will save you from more trouble.


Now you must be thinking isn’t it the same as saving, so the answer is no. In saving you are putting aside a portion of your income for emergencies. However, investing means buying financial assets like bonds, stocks, dividends, and real estate. These will help you grow your money without working for it. Investments help you to grow financially and keep your personal budget balanced.


As much as earning money and saving is crucial, spending money is necessary too; especially on your basic necessities. Spending is the portion of cash inflow that a person spends to buy anything they want, be it food, clothing, personal hygiene, furnishing etc. It is always recommended that one’s spending should always be less than their income to avoid any budget crunch.


Everyone needs protection, and in today’s time money is the biggest protector you can have. Including protection plans like life insurance, term insurance, accidental insurance, and retirement budget in your personal financial planning safeguards you from any mishappenings.

9 Steps Guide to Build Your Personal Financial Plan

Below given are the 9 steps which are required to create personal financial planning:

1. Set Financial goals

Knowing why you are saving your hard earned money is usually a smart idea. Therefore, the primary objective of personal financial planning is to help you achieve your financial goals. Start by listing them down into short-term, mid-term, and long-term. Financial goals are objectives you set for your spending, investments, or savings over a specified period. What kind of goals you want to achieve typically depends on the stage of life you’re in. Then apply S.M.A.R.T goal strategy i.e. Specific, Measurable, Achievable, Relevant, and Timely.

2. Create a budget

Consider this your monthly cash flow and investment strategy. With budgeting, you give yourself the authority to select where and how to send your money. You are living over your means if you find yourself in financial difficulty before the end of the month, especially if you are living paycheck to paycheck. You will not be able to manage your income and expenses unless you have a well-planned personal budget. A budget allows you to establish a hierarchy of requirements or desires and prioritize the most important ones first.

3. Plan for taxes

It can go a long way toward allowing you to save more money next year. In general, tax planning assists you in analyzing your finances and determining ways to maximize them. It enables you to take advantage of tax breaks, deductions, and perks to reduce your tax bill after each financial year.

4. Build an Emergency Fund

All the planning in the world will not assist you if life throws you a curveball and you are not financially prepared. This is where having an emergency fund comes in helpful. An emergency fund is a money saved up for unplanned bills or life events.

The first step in constructing an emergency fund is deciding how much protection you want to build. The best method to accomplish this is to open a separate bank or credit union savings account for your emergency fund. Online savings banks often offer the highest rates of return. You can set up an automatic transfer from your checking account to a high-yield online savings account.

5. Manage Debt

Creating a financial strategy requires understanding and effectively managing debt. The key to personal financial planning is debt management. If you are not cautious, you may borrow more to offset prior debts, causing your financial goals to be postponed. However, developing an effective debt repayment strategy will keep you from suffering such difficulties. So, don’t take debts and if you do pay them timely and as soon as possible.

6. Plan for retirement

Even if it’s a long way off, decide what you want your money to do for yourself when you retire and formulate a plan to make it happen. Nowadays, retirement planning is more important than it was ten years ago.

The most effective method to save for retirement is to use unique accounts that offer significant tax benefits. You can contribute to retirement accounts at many places of employment, including 401(k) and 403(b) plans, the former provided for businesses/organizations and the latter by the government and nonprofit organizations. Additionally, everyone with a source of earned income is eligible to contribute to their retirement account or IRA. Several brokerages provide IRAs.

Also read about What to Do After Retirement in India to Earn Money

retirement plan of indians

7. Identify Investment Alternatives

Put an engine behind your savings strategy to achieve your mid- and long-term goals. That’s what investing can do. There are lots of moving pieces to nail saving for retirement. Look for several investment tools which match your short, mid and long-term goals. And after selection and evaluation invest in the tools which give you the best returns with minimum risk.

8. Assemble and Implement the Plan

Once you have created your financial plan and you are satisfied with it, you need to implement it. This is where you might face some difficulties at the beginning, but, in the long run, it will give you maximum results.

9. Review and Re-evaluate

Once you have created a personal finance plan it doesn’t mean you need to follow it for your whole life. The plan will change with your changing needs, thus, review and re-evaluate your plan from time to time. This way you will know how much you are progressing in achieving your life and financial goals.

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Basics of Personal Financial Planning

Following are the basics of personal financial planning one needs to keep in mind for a good outcome:

1. Establish your goal and objectives

The basic goal of personal financial planning is to assist you in achieving your financial objectives. Make certain that your financial objectives are specific, measurable, adjustable, realistic, and time-bound, or S.M.A.R.T.

2. Start with a budget

Budgeting is the process of developing a balanced formula for making the best use of your hard-earned money. A budget is an itemized description of expected income and expenses for a certain period that can assist you in keeping your expenses in check and staying out of debt.

3. Keep a contingency reserve

Creating an emergency fund, also known as a contingency fund, is essential to a proper financial strategy. The contingency fund is saving six months’ worth of living expenses. This includes everything from household bills to EMI payments and any other monthly expenses you may spend.

4. Asset Allocation is the key

The core of personal financial planning is asset allocation. If you don’t want your possessions to end up in the wrong hands, you should arrange your estate as soon as possible. All you have to do is make a list of your assets and beneficiaries, and then decide how much of your assets you want to give to each.

5. Review your goals and Market Situation

A regular assessment of your financial plan boosts your chances of meeting your objectives since it allows you to account for any personal or economic changes. As a result, examine your plan frequently and eliminate items that no longer bring value to your portfolio.

Who Needs a Financial Plan?

Everyone needs to be aware of their financial plans as it creates a mini-roadmap for you as you go through the procedure. Therefore, the individuals who need a financial plan are discussed below:

1. A Spendthrifter

Money management is not always easy, and it can be difficult to master quickly. And if you are in habit of spending money without thinking it can make it difficult to save or invest, especially if you are a busy young professional. That is why creating a financial plan is needed to assist you better in completing this task.

2. A Person in Debt-Trap

Anyone who has ever had debt—whether it was from credit cards or student loans—knows that it can feel unmanageable at times, especially if you’re also trying to save for retirement or other financial objectives or live in an expensive city. If you are feeling overwhelmed by your debt, think about creating a financial plan which can assist you in creating a debt repayment strategy that fits your needs.

3. Person with Complicated Financial Situation

When you are self-employed or run your own business, your financial situation differs from a person who receives a wage every two weeks. A financial plan can assist you in better understanding the concept of money management and the special needs of managing your income and you can work on financial planning reduction.

4. An Investor

One of the most effective strategies for accumulating wealth is investing in the stock market. However, a significant number of people avoid investing out of fear of losing their money. If this suits you, talk to a financial planner, then develop an investment strategy that meets your risk tolerance.

Importance of Financial Planning

Since financial planning is important for all individuals, here are, a few of the same discussed. Have a look at it:

Maintains Stability

Personal financial planning assists in maintaining stability by creating a healthy balance between outflow and inflow of funds.

Risk Management

Financial planning decreases risks associated with changing market patterns, which can be easily addressed with adequate finances.

Money Management

Financial planning reduces and helps manage money in the best way possible. It can also assist you in calculating the number of resources needed for monthly spending.


Financial planning enables you to develop an integrated investment program that focuses on your goals, risk tolerance, and available resources, allowing you to enhance the return on your investment.

Financial Growth

Personal financial planning aids in the development of growth and expansion plans, which aid in an individual’s long-term sustainability.

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Start Your Personal Financial Planning Today!

Everyone wants a secure future, a future filled with comfort. And the thing that guarantees that future is money, money that you can save if you plan wisely today. Personal financial planning teaches you how you can spend money wisely, save for the future and grow it without hassle.

So, what are you waiting for start your journey toward early retirement today by planning your finances right. And if you have any confusion how you are going to do it then revisit the mentioned steps again.

Dive deep in our Budgeting guide, to save smarter, live better and learn strategies for financial stability & success.

Frequently Asked Questions

What are the 4 steps to Personal Finance Planning?

The four steps that are involved in the personal financial planning process are mentioned as follows:

1. Determine your financial condition and your financial objectives.
2. Identify and assess investment alternatives
3. Create and implement a financial plan.
4. Re-evaluate and monitor the plan.

How do you plan a personal financial plan?

The process of planning personal finance is very important for livelihood, especially after retirement. Here are the ways to plan personal finance for the better future:

1. Analyze your present financial condition.
2. Determine your objectives.
3. Identify financial gaps.
4. Prepare your financial plan.
5. Implement your financial plan.
6. Periodically review your strategy.

What is the main goal of personal financial planning?

The central goal of personal financial planning is to achieve your life goals. When you have enough money in your bank you can live your life the way you want and that’s the thing that personal finance helps you to achieve.

How do I start over financially?

If you are someone who is new to personal finance then you can follow these steps achieve your financial freedom.

1. Set financial goals
2. Create a new budget
3. Build your emergency fund
4. Fund your retirement account
5. Make Safe investments
6. Find a second income stream
7. Put off taking social security
8. Work on yourself

What’s the most important thing to do when planning your finances?

The most crucial aspect of personal financial planning is creating and sticking to a budget; without it, nothing else is feasible. Living within or below your means is a similar idea because it frees up more cash for debt repayment, savings, and investment.

Should my financial planning include investing?

Investing is essential for accumulating wealth through the power of compound interest. You are already investing if you follow the basics and contribute to a 401(k) at work or participate in a similar retirement plan.

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