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Financial Planning & Its Investment Options

By : Bajaj Allianz Life


What is Financial Planning?


Financial planning is an activity to manage your finances effectively. The objective of financial planning is to create sufficient assets and investments so that your goals can be adequately fulfilled. Under financial planning, you start by listing your income and expenses. You create a budget of your expenses and deduct them against the income that you earn. This gives your disposable income.

The disposable income is how much you can save. Financial planning assesses your existing assets and liabilities and then uses the disposable income to create funds for your financial goals. It also includes debt management and tax planning so that you can create a suitable financial portfolio and achieve financial independence.

Financial planning is an important activity to help you control your income, expenses, liabilities, savings and investments. It helps you take control of your money, efficiently.

The quote, ‘failing to plan is planning to fail’ may apply to money matters. Financial planning may be like creating a roadmap for your economic well-being. It may allow you to allocate your money in a manner that enables you to achieve your life goals. And ultimately, life goals may be anything you want immediately or in the long haul. Having a financial plan may help you achieve your goals while living a quality life.

Read on to understand how to go about planning your finances.


How to Plan Your Finances?


Financial planning for your personal finances can consist of several steps crucial to achieving your financial goals. Here's a closer look at some of the possible steps involved:

Step 1: Assess your current financial situation

To begin with, you may gather all information related to your income, assets, debts, and liabilities. This may give you a clear picture of your current financial situation.

Step 2: Identify your goals

Next, you may ask each member of your family to list their short-term and long-term financial goals. You may prioritize each goal and set a time frame for achieving it. Quantifying each goal may help you determine how much money you need to fulfil them.

Step 3: Identify financial gaps

Once you've assessed your current financial situation and identified your goals, you may calculate financial gaps, if any. This may help you determine the investments to cover the shortfall.

Step 4: Develop your financial plan

You may review your investment planning and check available investment options. You may determine which instrument(s) or a combination thereof suits your needs and corresponds with your investment time frame.

Step 5: Implement your financial plan

You may gather the necessary documents, open necessary bank and trading accounts, liaise with brokers, opt for suitable insurance plans and start investing. In short, you need to duly implement the financial planning and strategies that you have created.

Step 6: Regularly review your plan

Financial planning may be an ongoing process that requires periodic review, ideally every six months or after a significant life event. This may allow you to make any necessary revisions to your financial situation, goals, and your investment time frame, based on the performance of your investments.


How To Do Successful Financial Planning?


For successful financial planning, here are some basic steps –

1. Find Out Your Disposable Income

As you begin your financial planning, you need to know the disposable income that you have, which you can allocate to savings. The disposable income is the income minus expenses.

To keep your expenses low, make a budget. Weed out unnecessary expenses so that you can save more and invest more.

2. Identify Your Goals

Figure out your financial goals. Some might be planning to buy a home, set aside a corpus for your child’s higher education, go on an international trip, buy appliances for your home or gadgets for personal use, plan for retirement, etc.

List down your financial goals and prioritize them. Find which goals are a priority and which can be fulfilled after some time. List your goals in ascending order so that you know your investment horizon.

3. Assess Your Risk Appetite

Once your goals are identified and you know your disposable income, assess your risk tolerance level. This would help you pick the right investment avenues for your portfolio.

Usually, there are three main types of risk tolerance levels6 – aggressive, moderate and conservative.

Aggressive risk refers to a high tolerance for risk and a willingness to pursue potentially higher returns. Aggressive investors usually invest in high-risk assets such as stocks and are comfortable with market volatility. They have a long term horizon for wealth creation and are less concerned with short-term market fluctuations. However, it's important to note that aggressive investing carries a higher potential for significant losses.

Moderate risk falls in between aggressive and conservative risk levels. Moderate investors are comfortable taking moderate risks and aim for a balance between wealth creation and stability. They may usually invest in a mix of assets like stocks, bonds, mutual funds etc. with a moderate tolerance for market volatility. This approach allows for stable growth while providing a certain level of protection against market downturns.

Conservative risk refers to a low tolerance for risk with a preference to preserve wealth over seeking high returns with higher risks. Conservative investors are risk-averse and prioritize capital preservation. They usually invest in low-risk assets like government bonds, fixed-income securities, or money market funds. This approach offers greater stability and lower volatility, with typically lower potential returns over the long term.

4. Create An Emergency Fund

Before you start investing, set aside a part of your savings towards an emergency fund. This fund would come to your aid during emergencies and would not disturb the other savings that you have.

Life insurance plans can help you create an emergency fund against unforeseen contingencies. You can also create a fund in a liquid investment avenue which can be redeemed instantly.

5. Allocate Your Savings To Different Assets

Invest your disposable income towards different types of assets based on your risk appetite and investment horizon. Mix and match different instruments for a diversified portfolio.

6. Plan Your Taxes

Tax planning means managing your investments and expenses in such a manner that your tax liability reduces. A reduced tax liability helps in increasing disposable income, and you can save more towards your goals.

7. Manage Your Debts

If you have existing loans and debts, you need to manage them effectively to save on the interest cost. Pay off high-interest loans first and continue tax-saving loans like home loans.

8. Review Your Plan Regularly

Review your financial plan at regular intervals so that you can find any deviation and correct it. Regular reviews also allow you to keep your financial plan on track to meet your financial goals.


Elements of Financial Planning


There are some distinct elements of financial planning. Some of the common elements include the following –

1. Financial Goals

Your financial goals are some of the important elements of your financial plan. The whole plan revolves around your goals since you aim to create the desired funds to fulfill them. So, in the financial planning process, you need to first identify and prioritize your financial goals and objectives so that you can create a plan based on their requirements.

2. Risk Appetite

Another important element is your risk appetite. It measures your risk-taking ability and is important in shortlisting the investments needed for your financial portfolio.

3. Income And Expenses

Your income and expenses determine the savings that you can put aside each month towards investment for your financial goals. That is why, your income and expense statement or a budget is an important element when creating a financial plan.

4. Existing Assets And Liabilities

Existing assets and liabilities include your existing savings and loans. The data of your existing assets and investments is important to know how much you have saved and find out the additional savings required. The liability figures show your existing debts so that you can figure out how to manage them. Moreover, the amount of debt also allows you to make a provision for its repayment in your monthly budget.

5. Portfolio Diversification

Asset allocation and portfolio diversification are important elements of your financial plan as they help you pick out suitable investment avenues for creating funds. Asset allocation means investing your savings across different assets, while diversification aims to give you exposure to different asset classes.


Tips for Better Financial Planning


To create a financial plan and ensure that the plan helps you achieve your goals, here are some tips that you can follow –

1. Start Early

Start the financial planning process as early in your life as possible. When you are young, you have time on your side. You can give your investments time and allow them to grow. Starting early gives you a long-term investment horizon over which compounding can work its magic and allow your corpus to grow.

Moreover, when you have time, you can save small and affordable amounts regularly and still create the desired corpus for your financial goals.

2. Have A Disciplined Approach

Discipline goes a long way in creating the corpus that you want for your financial goals. So, when you start investing, be disciplined. Invest regularly, without fail, to save affordably. Moreover, resist the temptation to dip into your savings which are meant for your financial goals to indulge in a desire. If you want to make a big purchase, save for it first and then spend.

3. Cut Down On Unnecessary Expenses

When budgeting, look for expenses that are non-essential and cut down on such expenses to save more. Higher savings would promote higher investments, and you would be able to create a decent fund for your goals.

4. Invest First, Spend Later

Every month, as your income is credited to your account, invest a part of it first before you allocate it to the different expenses that you might have. This would ensure that your investments are disciplined. Moreover, the urge to indulge or overspend would be mitigated when your income is reduced.

5. Give Your Investments Time

Don’t be in a hurry to watch your investments grow into a considerable fund. Remember, it takes time for a seed to grow into a gigantic tree. Give your investments some time to see the yields.

6. Keep Regular Track Of Your Portfolio

Keep a tab on how your financial portfolio is performing. Make changes if it doesn’t align with your risk appetite and investment horizon so that your plan stays relevant in changing conditions.


How To Know That Your Financial Plan Is Being Implemented As Planned?


Here are some questions you can ask yourself to know whether your plan is working for you-

  • Does it benefit your current financial situation?
  • Does it list out all your goals in measurable terms?
  • Does it make you feel financially secure?
  • Do you see yourself achieving your financial goals?
  • Is it based on sound investment strategies?
  • Are you getting enough returns as planned?


If you are finding it overwhelming to create and manage your financial plan, it is always recommended to seek the help of a financial expert. If professional help is sought, your financial planner may ensure that your financial plan also contains the following:

  • List of possible risks and a management plan to combat the same
  • A mapping between the investments and goals, i.e., how each investment helps you achieve your goals
  • Tax implications of each investment
  • Risk reward ratio evaluation as per your risk appetite


Managing your money well may allow you to live the life you want with a possible sense of security. Investment planning may be a long-term commitment that requires a comfortable, mutually beneficial relationship with your planner until you meet your last goal. If you feel overwhelmed by the financial planning process, you can always consult a professional financial planner who can guide you through the process.




Financial planning is an important activity to manage your income and expenses and create funds for your financial goals. Understand what it is all about and plan your finances effectively. Identify your goals and then save according to your risk appetite and investment strategy so that you have sufficient funds to fulfill your goals. Review your financial plan regularly for any changes and pave the way to financial independence.




1. What are the 5 steps of financial planning?

The 5 important steps of financial planning are as follows –

  • Goal identification and prioritization,
  • Budgeting and assessment of disposable income,
  • Risk profiling,
  • Asset allocation and portfolio diversification and
  • Regular review.


2. How important is financial planning?

Financial planning is very important since it allows you to manage your finances and create adequate funds for your financial goals. Through financial planning, you can ensure that your financial goals are met, and you can take charge of your finances.

3. What are the 4 main types of financial planning1?

The main types of financial planning include the following, among others –

  • Investment Planning,
  • Insurance planning,
  • Tax planning and
  • Cash flow planning.


4. What is the most important step of financial planning?

All the steps of financial planning are important. However, one essential step is goal identification and prioritizing, which helps you know the reasons for creating the financial plan in the first place. Moreover, identifying your goals helps you to know the –

  • How much do you need to save?
  • For how long do you need to save?
  • Which investment avenues to pick?

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