Financial planning process in six steps | Financial Planning Guide

At ET Wealth’s July 7th Investment Workshop, Puneet Oberoi, CFP, asked a basic financial planning question: Do you know how much you spend a month and do you write it down? Only one of the more than 400 present raised her hand.

This when he emphasized that if you do not know what your spending is, how can you save? “If we don’t know, a bigger question arises – how much should you save?” says Oberoi.

He suggests that one should know one’s monthly expenses and actually write down their monthly expenses to know one’s excess.

Oberoi spoke at the ET Wealth Investment Workshop held in Delhi on July 7, 2018. At the workshop, topics such as tax planning, financial planning and the recategorization of investment funds were discussed.


Every professional, businessman or employee has their own goals, whether in business or at work, but when it comes to personal finance goals, we don’t have them. But to know how much we need to save, we need to know our goals.

Oberoi shared a few examples of this. A person starts investing for their child when the child is born and invests in a Rs 5 lakh policy without really thinking about how much they need. They do not realize the value of the investment if it is due after 15-20 years as the requirement could be 1 billion rupees.

He gave another example: A person with a monthly income of Rs 1 lakh income has in mind that he has expenses of Rs 60,000. From the remainder of Rs 40,000 and with the usual goals of buying a home, raising children and getting married, he begins investing 10,000 each month. The remainder of Rs 30,000 is held for contingencies, but this amount actually goes towards household expenses. According to Oberoi, this applies to everyone because we don’t know our goals and our expenses.

So how do we properly plan our finances? Oberoi said there are six steps to financial planning.

1. Determination of the current financial situation
In the first step, Oberoi tells us that if we don’t know what our income and expenses are, what the surplus is. So all income and expenses (no matter how small) must be accounted for. Expenses for festivities, vacations, participation in wedding celebrations must also be taken into account. Once this has been done over a period of about six months, we get an idea of ​​the excess.

As all existing investments on assets such as debt and equity, including stocks, mutual funds, time deposits, life insurance, etc. value.

2. Controlling risk appetite
Everyone has a different willingness to take risks, which can be “aggressive”, “moderate”, “conservative” and finally “not sure”. In reality, however, most advisors impose their own risk appetite on investors.

In practice, a risk profiling questionnaire during the financial planning process helps determine each person’s risk appetite. “Still, we don’t strictly adhere to what the results show and infer over a period of time what the person’s risk tolerance is,” Oberoi said. He added, “Initially we will remain conservative and gradually increase the risk in the investor’s portfolio to make it more comfortable for the investor.”

3. Identify goals
Oberoi said the identification of targets is mostly misunderstood. In his opinion, we are aware of goals, but we talk about goals according to today’s value. However, the value of the goals is important, and not the current value. For example, if someone who wants to send their child abroad to study at the age of 18, whose current cost is 35 lakh, needs to save for the future value of the course. Only then can we find out how much we need to save to achieve this goal and invest across all systems in order to achieve it.

4. Allocation of assets
There could be existing investments, for example, earmarked for specific goals. So we have to map them for the underlying goals and only invest for the shortfall. Therefore, it is important to match each individual asset to each individual goal before starting any investment. Then, based on the current situation, it is clear where exactly we need to invest, be it in investment funds, fixed-term deposits, FMPs. Here we have to decide on the asset allocation.

5. Recognize risks
Even when planning is required and carried out, unforeseen events must also be taken into account. Risk analysis is most important and the pursuit of returns is not the only way. Protection plays an equally important role in financial planning. Term life insurance (the purest form of insurance) is the right plan. An important thing to consider when taking out insurance is how many years you want the plan to last. According to Oberoi, nearly 90-95 percent of planners will tell you to get the term plan for its maximum term. While the rule of thumb is to keep coverage until you have liabilities, Oberoi will hold coverage for 15-20 years.

As for health insurance, its importance cannot be undermined, but the question is how much to buy. Approximately 95 percent of people say they should keep coverage of Rs 5 lakh and gradually move to Rs 10 lakh. However, according to Oberoi, hospital costs are increasing by almost 20 percent annually. Increasing risk coverage in later years is also not easy. When a problem is detected, insurers reject claims and then there are expulsions. And while you can get coverage, don’t go cheap. It’s just a myth that higher coverage costs too much. Contrary to popular belief, you don’t have to pay higher premiums to get more insurance coverage.

Finally take out disability insurance. According to Oberoi, health and disability are more of a challenge than death because they lead to a higher cost of living, i.e., medical costs.

6. Constant monitoring
Oberoi said a key element of financial planning is to constantly monitor your plan. “People think that making a plan is financial planning – you make it and it’s over. But financial planning is all about constant monitoring because there are a lot of changes every year Goals come because things may not go as planned. ” What if the expected returns were 14 percent per year, but the actual annual return was around 6 percent for 4-5 years, then we have to go ahead and change the investments, “Oberoi said.

“Financial planning is the right financial planning, that is the key to financial planning,” summarized Oberoi.

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