What Must a Personal Financial Planning Include?

  • Financial Goal – This includes the short, medium and long-term goals.
  • Net Worth – Determining total assets and liabilities is important.
  • Budget – Create a budget based on needs, wants and savings.
  • Plan That Suits You – Plan according to your age - beginner, intermediate and experienced.
  • Invest in Emergency Fund and Retirement – Create a rainy day fund and save to meet your post-retirement expenses.

This list is not limited here. To know more, continue reading.

6 Best Ways to Create Personal Financial Planning

  • 1. Assess Your Financial Goal

    The first step to financial planning for salaried employees is to determine what their financial goals are. So, break it down into long, medium, short terms to organise your budget.

    Your long-term goals involve 10 years or more, including your retirement plans.

    Medium-term goals are the ones that you want to achieve in the next 5 to 10 years. It includes initiating your own business or managing your budget.

    Set the short-term goals you want to achieve in the next 5 years. It ranges from consolidating your debt to fulfil your dream to purchase a car.

    Now, categorise your financial goals into three:
    Needs
    Wants
    Savings
    It is important to prioritise what are your immediate needs and what you need to concentrate on later.

  • Your net worth is the baseline to start personal financial planning. First, assess your salary, liabilities and other expenses. Now, calculate the assets minus liabilities to get your total net worth.

  • The purpose of a budget is to create a framework based on your net worth and meet your life goals accordingly. With this, analyse your cash flow through a 50/30/20 thumb rule.

    The 50% must be assigned to meet the day-to-day expenses. It includes your rent, food and others.

    At the same time, 30% must be allocated to significant expenses but are not immediate. For example, it involves dining out or purchasing a new phone.

    Finally, the last 20% must be devoted to savings to reserve emergency funds for your retirement or repay your monthly instalments.

  • As savings is part of your budget, make sure to plan it effectively. For example, if you have started your career, 10% of your post income must be allocated to savings.

    As the income increases, increase your savings to 15%. As the age progresses, meet your increasing financial liabilities with 35% of your savings.

    However, there are exceptions to the specified percentage. Nevertheless, the effective allocation of savings as per your requirement is an important move to manage your debt.

  • An individual's retirement plan depends on the age and the monthly expenses post-retirement.

    For instance, an individual decides to retire at 65 years of age, and his monthly expenditure stands at ₹50000. Accordingly, he must invest in SIP (return of 12%) for consecutive 30 years to earn approximately ₹1 crore to meet his post-retirement expenses.

    Financial experts suggest that one must target a retirement accumulation of 20 times one's annual income. This old rule of thumb considers income and not expenses.

    Thus, keeping in mind the importance of retirement planning, draw your retirement plan according to your present expenses and scenarios.

  • Effective personal financial planning must reserve funds to meet emergencies. It is ideal to save for 3 months in advance. However, experts recommend considering 6-month to save in a savings account that can be accessed whenever any needful situation arises.