Building blocks of a Financial Plan

In this post I will try and address the building blocks that will be necessary for any Financial Plan. You’d have seen a few of them earlier in a couple of previous posts, but it will be important to tie these up together.

To create a holistic financial plan for yourself, you need to go through the following steps:-

  1. Understand your net worth at the present time. For this, do not go by the standard method of monetizing all your assets. Just do it for the financial assets and the logical real ones. So while you need to estimate the value of your home if you own one, there is no need to estimate the value of all your furniture etc. For your liabilities take all the outstanding loans including payments to be made for credit cards. Remember Net worth = Relevant Assets РRelevant liabilities
  2. The next step will be to protect your current achievements. For this you will need to understand the different kinds of insurance that you require. These will be Life insurance, Personal accident insurance, Property insurance, Health insurance, Car insurance etc. I will cover details of this in another post.
  3. Use the Extended Money Equation and understand the different kinds of income and expenses that you incur every month. This will give you a good idea of your cash flows as well as the surplus available for investment every month.
  4. You have already mapped out significant events of your future life to financial goals and projected a money value for these. Get all of these at one place to understand how much money you need when.
  5. Calculate the investment needed for these goals. Start with the farthest one and come back to the most recent one. Do not worry too much if this sounds difficult, I will explain this with one post soon.
  6. Decide on an Asset allocation for yourself, based on your risk profile.
  7. Create an investment plan for Debt , Stocks and MF portfolios based on the figures of step 5.
  8. Establish quarterly reviews for stock taking and Annual reviews for any important changes to your portfolio.
  9. Stick to asset allocation decided by you, re-balance every year if needed but not more frequently than that.
  10. Make a will and get it registered so that in the event of your unfortunate demise, your family is not thrown into chaos.

I hope the above does not sound too complex !! Do not worry, I have done it for myself and a few others so you should also be able to do it. Over the next few posts I will elaborate on some of the above steps. I will also try to use a case study for outlining a simple Financial Plan that can be formulsted from scratch.

While I see several views and visits and many of you have reached out to me personally, I would definitely like to see more comments on my posts. This will start off discussions that will be useful to all readers. Look forward to a whole lot of comments in this post for starters !!


7 thoughts on “Building blocks of a Financial Plan

  1. Hello sir; a sample plan is what I looking eagerly to publish as all doubts can be correlated and cleared with help of that.applause for taking initiative to teach basics of creating a feasible financial plan.


  2. Very aptly articulated the complex steps of Financial Planning. Especially point no. 2 is very important to assess the financial asset generated till date and protect the same from unforeseen situations and this can be done via Insurance. I am waiting to read the details of each step above. Thank you.


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