6 Steps To Create A Financial Plan

5 min read
The financial planning process is a logical procedure. One can create its own Financial Plan by going through all the steps carefully. In this article, we are going to discuss 6 steps required to create or build a financial plan.

How To Build A Financial Plan?


The financial planning process is a logical procedure. One can create its own Financial Plan by going through all the steps carefully. In this article, we are going to discuss 6 steps required to create or build a financial plan.

Financial planning is the on-going process to help you make prudent decisions about spending, investing, and transferring your income and assets to help you achieve your financial goals. For the details, Refer : https://finplanyadnya.in/

Steps To Create A Financial Plan :

Steps To Create A Financial Plan
Steps To Create A Financial Plan

These 6 steps for creating a financial plan are given below, and explained in detail:

Step 1: Determine Your Current Financial Situation

  • In this first step of the financial planning process, you will determine your current financial situation with regard to income, savings, living expenses and debts.
  • Preparing a list of current asset and debt balances and amounts spent for various items gives you a foundation for financial planning activities.

Step 2: Develop Financial Goals

  • The purpose of establishing the goal is to form the foundation or purpose of planning itself, in order to begin with the financial journey with the clarification of a financial destination. Too many people save and invest money with no specific goals in mind.
  • The second step of the financial planning process is defining your goals, which entails writing down or formalizing your financial goals, attaching costs to them and determining when the money to accomplish those goals will be needed.
  • Only when you set goals—and analyze them and decide if you’re willing to make the financial commitment necessary to achieve them. Then only you can reach them.

Step 3: Convert Financial Goals to Plan

The third step of the process is developing an action plan to achieve your goals. A solid personal financial plan includes an informed and controlled budget, determines your investment strategy and reflects your unique personal goals. This step involves importantly three sub-steps, which are:

  1. Linking your current assets with your goals
  2. Linking your current and future savings to your goals
  3. Create alternatives – Developing alternatives is crucial for making good financial plan. Although many factors will influence the available alternatives, possible courses of action usually fall into these categories:
  • Continue the same course of action – Stick with current investment & savings plan.
  • Change the current situation – Tweak your current situation to make it more future goals oriented.
  • Take a new course of action – Completely change your current financial strategy and overhaul needed in all financial aspects.

Based on these steps, you should have your Final Goal strategy ready with you, where you should be able to answer the following:

  1. What is the corpus required for the goal?
  2. How much investment is needed for each goal?
  3. Priority of Goals
  4. Are my Goals practical?

Step 4: Evaluate Alternatives

Once you have final goals strategy, next step is to scout for right assets for each goal. However, firstly you should know about all the types of financial assets available:

  1. Equity
  2. Corporate Debt
  3. Govt. Debt
  4. Small Savings Scheme
  5. Real Estate
  6. Insurance
  7. Gold
  8. Crypto Currency

You should select the assets, depending upon the following factors:

  • Your Risk Profile – Every individual has different risk profile at different point in life. Some individuals may be conservative risk takers by nature and some may be due to bad experiences. Someone may be a high risk taker when young and become a low risk taker as age progresses. So, there are all kind of individuals, it is important to know what kind of individual are you at that particular point of time and accordingly you should consider and select the assets for investments.
  • Risk of each asset under consideration – Uncertainty is a part of every decision. Some decisions involve a very low degree of risk, such as putting money in a savings account or purchasing items that cost only a few hundred Rupees. But certain assets come under very high risk such as Crypto Currency, Futures etc. In many financial decisions, identifying and evaluating the risk is difficult. The best way to consider risk is to gather information based on your experience and the experiences of the experts.
  • Pros/Cons of each asset – Apart from risk, there are many other aspects as well for selection of asset such ease of investing, liquidity, cost of ownership, ease of tracking, lock-in period, ease of redemption, etc. All these factors are also required to be considered too, before selecting the asset.

Based on your goals and above mentioned parameters, you should finalize the asset type for each of your goal.

Step 5: Create and Implement a Financial Action Plan

  • To this point, the financial planning data has been gathered and analyzed, financial planning statements have been created, goals and objectives have been measured and financial gaps (if any) are found.
  • The next step in the financial planning process is implementing the financial plan’s recommendations. Though this is not the last step in the process, most of the hard work is behind you.
  • You need to create an ‘Action plan’. Your financial planning action plan should include all of the tasks that you will need to accomplish, in order to improve your financial situation.

For example:

  1. Exit from any current investment (if required)
  2. Methods of Investing – Systematic/Lump sum
  3. Timelines of Investments
  4. How to automate investments & budget to simplify tracking
  5. Tax Planning – Make sure your investments are tax efficient
  6. Estate Planning

When implementing a financial plan you will probably need to rely on the expertise of a few specialists such as Tax Professionals, Insurance Agents, Mutual Fund/Stock distributors, etc.

Step 6: Re-evaluate and Revise your Plan

  • Financial planning is a dynamic process that does not end when you take a particular action. You need to regularly assess your financial decisions. Changing personal, social and economic factors may require more frequent assessments.
  • When life events affect your financial needs, this financial planning process will provide a vehicle for adapting to those changes. Regularly reviewing this decision-making process will help you make priority adjustments that will bring your financial goals and activities in line with your current life situation.

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