Finance Planning – Why is it so important?

Managing wealth is a difficult task, and personal finance planning is gaining more importance with time. People these days require a strategy for managing their money because markets are becoming uncertain, and predicting the future is not easy. So, this article will help you manage your money more strategically.

What is Finance Planning?

Personal Finance is the financial management or planning of one’s expenditure, investments, and savings for individuals and family members. Financial planning involves budgeting, banking, insurance, mortgages, investments, retirement planning, tax, and estate planning.

finance planning

Importance of Finance Planning

  1. Financial planning helps to meet our money needs – Financial planning helps develop a plan that would help us manage our income and expenditure in such a way that we meet our money requirements on time.
  2. Income – expenditure, savings, and investments – A person should always divide his income into three parts; it would help him plan about his expense to save enough money to invest for his future needs.
  3. Better tax planning and improves cash flow – Proper planning will help you to decrease unwanted expenditure that would increase cash flow and assist in saving tax.
  4. Security for a person and his family – In most cases, the family is dependent upon one or few individuals, so if there is poor financial planning, it may lead the person to financial distress and people dependent upon him would also get affected.
  5. Helps in avoiding unmanageable debts – With proper planning, there would be more savings and a person would have to borrow less, which would help him to avoid unwanted debt.
  6. Growth of assets – With a proper investment strategy, the value of a person’s assets will grow with time.
  7. Improves the standard of living – More savings means more money to spend, that would lead to an improved standard of living.
  8. Prepares for emergencies – Future is unpredictable, and a situation like COVID-19 can occur without warning. With financial planning, a person can be prepared for such conditions in advance.

Steps for Finance Planning

  1. Defining financial objectives and goals The objectives and goals should be clearly defined. They should be quantifiable, have clarity, identify the timeframe, differentiate between needs and wants, and, achievable. These should be documented well, which will help you track it in the future and make changes according to the market changes.
  2. Collecting financial and personal information – All relevant information related to your finances should be collected and the quality of the information is important for preparing a good financial plan. The information should include your income, expenditure, assets, liabilities, risk attitude, tolerance, and capacity.
  3. Analyzing financial and personal information – The information provided in step 2 is to be organized in a way that shows your financial position. Some of the ratios you can use to analyze the information are Solvency Ratio, Debt Ratio, Liquidity Ratio, Savings, Ratio. This will help you measure your risk attitude, tolerance, and capacity. This helps to assess your asset allocation for investment and pension goals.
  4. Developing and preparing the financial plan – With the information provided in step 2 and step 3, the financial plan is developed with addressing the objectives and goals set in step 1. The plan would include a net worth statement or a balance sheet, tax to be paid annually, and the cash flow statement after you are convinced of the plan than go on the final step.
  5. Implementation and review of the financial plan – After the formulation of the final plan, then prepare an investment strategy. After implementing these actions, they are to be reviewed from time to time and modifications are to be made according to the market changes.

Features of a good financial plan

How do you evaluate the quality and effectiveness of your financial plan? Well, here’s a checklist you can use.

  • Does it indicate your current financial situation?
  • Does it list out all your goals in measurable terms?
  • Does it lay out an investment strategy?

If professional help is sought, your financial planner will ensure that your financial plan also contains the following:

  • List of possible risks and a risk management plan.
  • Expected returns from each investment.
  • A mapping between the investments and goals, i.e., how each investment helps you achieve your goals.
  • Details of one time and recurring fees charged by him.


Personal finance management has become an essential part of one’s life. In tough times like COVID-19, this becomes even more important. Financial planning involves proper analysis, expertise, and discipline.  Hence, one should start financial planning early as it will help in meeting financial goals and attain financial freedom, and if wanted can also appoint an advisor for better understanding and planning. is an award winning personal finance platform. It helps you aggregate all your personal finance accounts like FD, Equity, Mutual Funds, PPF EPF, NPS including, Credit Cards & Loans etc. It's one place where you can track, plan and invest seamlessly. empowers you to invest in zero commission direct plans of mutual funds thereby helping you generate higher on investments. The best part is it comes with a lifetime Free plan.

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