The Ultimate Guide To Financial Planning and Analysis

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Become rich is every body’s dream. But it is not possible for everybody so what is possible for us is become fully financial settle, but it need systematic plan & discipline to achieve our goals. So before going to financial planning and analysis let’s see

What is financial planning?

Financial planning and analysis is the process of developing a personal road map for your financial well being. Financial planning is key to achieve financial freedom. Before we start we need to understand some terms which is very important for our financial planning

Purchasing power of money

In simple word it is power of money to buy anything like goods, service, etc.

For Example: – if we buy 1 kg tomato at price of 25rs after 10 year price of 1 kg tomato is not same it will increase suppose after 10 year 1 kg tomato costs 50 rs means power of our money decrease by 50% means we need increase our money from 25 to 50 rs to get same amount of goods. So one thing is clear if we want to invest for future then we need to maintain our money’s purchasing power or increase it.


Inflation is defined as an increase in the prices for goods and services in a country, and is measured as an annual percentage change.

For example:- if we buy 1 kg tomato at price of 25rs after 10 year price of 1 kg tomato is not same it will increase suppose after 10 year 1 kg tomato costs 50 rs means inflation of tomato increase 5 %/ year. There is close relation between Inflation & Purchasing power of money. If inflation rises then purchasing power decreases & vice versa.

Also Read: Basics of Financial Planning

Main objective of Financial Planning and Analysis

Manage & invest our saving in such way which increase the purchasing power of money & beat the inflation. For example: – if we invest in Fixed deposit then we get 7 % rate of interest & in that period inflation is 10 % then our money loose power by 3% by means we need to invest in such financial instrument which give return above the inflation. If we fail to increase purchasing power of money then money fail to achieve our goals.

Steps of financial planning

– Define Goals
– Current financial situation
– Risk management
– Identify our risk profile
– Make the investment strategy
– Make the way for your saving short falls & finalize plan
– Maintain financial discipline & review your investment

1. Define goals

First step in financial planning and analysis is defining your goals. First of all make list of your goals,Then categories it in following categories
Categories Your Goals on basis of time

1) Short time:- The goal which we want to achieve within 1 year example my child play group admission
2) Medium term :- The goal which we want to achieve within 5 year example my child School admission
3) Long term :- The goal which we want to achieve After 5 year example my child High School admission

After sorting of goals we need to allocate approximate funds to each goals but while allocating fund we need to consider the inflation
1) My goal is to purchase car 3,00,000 tenure 5 year calculate the future cost by calculating same segment car’ value for e.g.:- martin 800 lunch at 48000 before 26 year it cost 2,15,000 at present so the rate of inflation or decrease in purchase power is approx 6% so the future value is 4,01,468 but consider 1% higher to adjust volatility, so after that actual cost after 5 year considering 6+1=7% inflation the value of car is 420766 rest. It gives very accurate value of our goal & gives strength to our plan

If we do not want to research so much then we can assume common inflation rate from 7 to 8 %
See the table for more understanding
Financial Planning and analysis

2. Current Financial Situation

It is very important that we have clear picture of our financial situation it give us power to take decisions on our investments & expenses. This is very crucial for financial planning and analysis as mapping your current situation will give you clear Idea about where you stand financially.
Make the List of following items

    • List of assets
    • List of liabilities
    • Current income
    • Current expenses

Find out how much you can save

To get exact saving monitor your monthly income & expenses for3 – 6 month you will get clear picture on your savings

Current financial Situation

Financial Planning and Analysis

Financial Planning and Analysis

3) Risk management

Our life is full risk & uncertainty so we need to manage risk & best way to manage risk is Insurance. Must Follow below points to manage risk. It is key in Financial Planning and Analysis.
1) Always keep 3 month expenses in your bank account
2) Insure your all liability to avoid burden on your family
3) Insure your Life if your only working person in your family
4) Make list of liquid asset which can help in emergency
5) take the Health insurance to protect medical emergency

How much insurance I need ????

It is based on following parameter

1) Annual income:- Term insurance = 22(is max one can analyze risk) X annual income
2) health insurance = ½ X Annual income (at least)
3) Liabilities’ you have

4) Identify our risk profile

A risk profile is an evaluation of risks an individual or organization’s willing to take. A risk profile is important for determining a proper investment asset allocation for a portfolio. Risk profile identifies the acceptable level of risk an individual or corporation is prepared to accept. It can affect an overall investment strategy.
There is special tool which can determine the individual’s risk by simply answering some question. So first we need to identify our risk profile by using this tool. After using this tool you will get following type of your risk profile these are

High risk profile:- Aggressive investment
Medium risk :- Moderate investment
Low risk :– Defensive investment

Risk profile is based on some factor these are,
1) Age, higher the age lower the risk & vice versa
2) Our annual income & spending
3) How discipline we are to achieve long term goal
4) How many people are earning in your family or all are dependent on you.
5) Nature of current job is it fixed income & secure or it is variable income & unsecure
6) Saving or investing habit
7) How much you know about various investment option
8) What is your risk taking style you are taking calculated risk or speculative risk
9) How you react when you had loss on your investment
10) Your knowledge about finance

5) Make the investment plan

After finalize your risk profile you need to finalize investment strategy which suite your risk profile & help to achieving your goals we can see how risk profile is related to our investment returns

High risk profile: – Aggressive investment: – 80%equity & 20 % debt: – return assumption 14 to18.5 %CAGR
Medium risk: – Moderate investment: – 55%equity & 45 % debt: – return assumption 11 to12.5 %CAGR
Low risk: – Defensive investment: – 15%equity & 85 % debt: – return assumption 7 to9.5 %CAGR
So now we need to finalize our investment strategy
Financial Planing and AnalysisAfter making our investment strategy with moderate return we realize we need more saving. Previously we seen after calculating our income & expenditure we have 7,000 rs & we need to save 15,900 to meet all goals. So what can we do to achieve to meet goals ??????

6) Make the way for your saving short falls & finalize plan

First of all we need to revise our expenditure to save more but we need to remember it will not affect our basic needs & we can easily maintain it. For example we had 4 post paid connection & it cost us 1,200rs & we not able to use it fully because we have not that much calls. Then convert 2 or 3 of them in prepaid so we have flexibility to control cost on phone bill
rental Free min Actual usage conversion Cost after saving. Same as above minimize all your expenditures and prepare revised expenditure plan as below

Revised expenditure plan

Financial Planning and Analysis


After revising exp. Plan, still we lack the funds then we need to think some of mains aspects of financial plan. First we need to prioritize our goals then we can revise our long term goals as invest less now & increase it over the time of period. Start with high priority goals & cut low priority goal if insufficient funds
Final plan
Financial Planning and AnalysisAfter finalizing plan we realize that foreign trip is not so important goal it has less priority so we can postponed or cut that goal. Our income rises every year so some of investment we can increase 10 % annually for long term goals . after all the adjustment we found we need 13900 rs and saving is 14300 so we can use 600 rs as compensating to return fluctuation

7) Maintain financial discipline & review your investment

1) Review Your Plan on yearly basis & make changes accordingly if needed, if you got low returns than planned, then invest more & if you got higher return than planned then make provision for postponed goals.
2) Do not compromise on your plans at any cost, if you need extra money generate other sources of money or cut your           expenses
3) Invest regularly.
4) Don’t get feared of market volatility.
5) Always remember the miracle of power of compounding.
6) Make good habit of investing regularly & stick to your plan.
7) Keep some fund aside to invest in Bear market.
8) Be Accountable for Your Spending.
9) Maintain balance between your need & your saving.
10) Maintain record of your expenses it will help to make more accurate investment strategy.

Last but not the least & not to forget

1) Total debt emi should not exceed 36% of your monthly income
– Housing: – 28%
– Other: – 8%
2) Save min 20% of your monthly income
3) Don’t work for money let money work for you
4) High return comes with high risk so take calculated risk
5) Maintain balance between your liking & needs

Correct Financial Planning Also Helps Us Save Tax Efficiently

Wrap Up

Financial planning and analysis is very important for us, it gives the clear picture of our financial condition & shows right way to achieve financial freedom. Financial planning develop some skill these are
1) It develop Good business Sense
2) It teach some important things like money management, Discipline, petions
3) It develops problem solving skills & teaches us how to solve problem with calm nature
4) It develop good knowledge of how to use finance to run good business
5) Equity is best option to achieve our long term goals

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