LEARNING OUTCOME

The learning from this chapter will enable students

♦ Get familiarized with the financial goal~ popular among the public
(
♦ Understand how to prioritize and set financial goals
♦ Learn the concept of financial planning and its need/importa nce
♦ Become aware_of the steps to follow in financial planning
INTRODUCTION
We can all agree that the _u ltimate goal of financial literacy is to attain the
required skills to prepare a· sound _financial plan♦- We all have various goals
which we want to achieve in life like funds _for higher education, owning house
property, owning a vehicle, children's marriage, retirement, etc. Without proper
financial skills and knowledge, it is next to impossible.to achieve all these goals.
So, in this, we will understand the concept of financial planning and its need.

FINANCIAL PLANNING
Financial planning means developing a personal roadmap for your financial
well.~ing. The outcome of the who~e planni~g pro~ess is a.path wh!ch needs
to be followed to attain all the financial goals 1n the hght of external hindrances
like inflation truces etc. It means systematically planning your fipances in order
to achieve y~ur fin~ncial goals within the defined timeline.

FINANCIAL PLANNING PROCESS

·l l ·
The fina.nc1a p anrung pr
ocess involves several steps that an individual can
follow to achieve their financial goals.
STEP f: Define your financial goals . .
. .al 1 .ng process is to define your financial goals.
The firststep in the financi ·P arm~ t d to achieve through money manage•
Binancial goals are the targets one in en s

2.1
 UNIT 1: FINAN CIAL PLAN NING AND BUDG ETING
2.2
ment . Setti ng finan cial goals can help in attai ning finan cial discip
line Th
assis t in enco urag ing savin gs and maki ng cons cious inves tmen
t decision. ey
Som e of the popu lar finan cial goals are given below : s.
• · Mak e a budg et and live by it
♦ Pay off cred it card debt
♦ Save an emer genc y fund
♦ . Save for retire ment

♦ Live below your mean s

♦ Deve lop skills to impr ove your inco me

♦ Save for your child ren's educ ation

♦ Save a down paym ent for a hom e
♦ Impr ove your.credi t score
Whe n you analy se your goals , you will 'disco ver that some migh t
take you some
time to reach , whil e otj:ier~ do 1:)'.ot so much . r-~1.u~, base d. on the
time span, the
finan cial goals ~e class ified into 3 ~ateg ories :_
' .. .
\ ' .; ,. '
♦ Shor t-ter m Goal s: Shor t-term goals are finan cial
•.
'

goals with a narrow

scop e and limit ed time horiz on. It inclu des purc hasin g hous ehold
elec-
troni cs, furnitu,:-e, hous e r:el}ovatipn,. vpca tion spen ding etc. More
over,
the more i:mP.?mp:1t shoit -~erm· go,~l its, ge:t ting a .grip qn y~ur spend
ing,
start ing to pract ice bµdg eting , av<;>idJng sh<;>rt-term debt defau lts,
•
J :; . setting
a IJ).i nim~ lii:µit qf re~l ar s,ayings and
a. •
' ~- ' . -· ~ .
stai;t ipg b¥i!d ing your emergency
fund as soon as pos~ iple. . . . ri . . _· . ,
♦ Midt erm Goal s: The tende ncy to weig ht finan
cial plans arou nd the near-
and long -term goals has been calle d the "barb ell" appr oach . Howe
ver, due
cons idera tions need to be given to midt erm goals whic h take betw
een 3
to 10 years to fulfiJ. Som e exam ples 9f medi um7"t e~ goals are
a down
paym ent on a hous e, payin g off a stµdy loan, inter natio nal ~acat
ion,
start ing a busin ess, etc.
♦ Long -term Goal s: Your long -term goals are direc ted towa rds
being d~ne
with your respo nsibi lities and linin g a comf ortab le and stress-fi:ee
bf~.
Thus , some popu lar long -term goals are child ren's educ ation ~child
rens
marr iage and comf ortab le retir emen t. Thes e goals are realis ed
between
20 t o 40 years . Thes e goals requ ire disci pline d inves ting becau th
se ey
cann ot be comp romi sed.
2.3 CH. 2 : FINANCIAL PLANNING
 UNIT 1: FINANCIAL PLANNING AND BUDGETING
2,4

STEP 2: Assess your current financial situation

The next step is to assess your current financial situation. This involves reviewing
your income, expenses, assets, and liabilities. By understanding your current
financial situation, you can identify areas where you may need to make chan-
ges in order to reach your financial goals.
STEP 3: Create a budget
Once you have a clear understanding of your financial situation, you can create
a budget. A budget is a plan that outlines how you will a_llocate your income
and expenses in order to meet your financial goals. It is important to track your
spending and stick
,
to your budget to achieve your financial goals.
.

STEP 4: Develop a financial plan

After you have defined your financial goals and assessed your current financial
situation, you can develop a financial plan. A financial plan is a roadmap that
outlines the steps you need to take to achieve your financial goals. It should
include a timeline for achieving each goal, as well as a strategy for how you
will achieve them. ·
STEP 5: Impleinent your financial plan
Once you have developed a financial plan, it is important to implement it. This
may involve making changes to your spending habits, investing your savings,
or making other financial decisions to help you reach your goals.
STEP 6: Monitor and review your progress
It is important to regularly review and monitor your financial plan to ensure
that you are on the right track to attain your financial goals. This may involve
reviewing your budget, adjusting your financial plan as needed, and making
any necessary changes to your financial strategy. ·
By following .these steps, you can create a solid financial plan •that will help
you achieve all your cruc_ial financial goals. It is important to be proactive a?d
disciplined in managing your finances, as this will help you achieve financial
stability and security in th'.e long term.
As rightly said by Annamaria Lusardi, a George Washington University profes- ·
sor who also is one of the world's foremost experts on debt management "The
bottom line is everyone can do more and everyone should do more to plan for
their financial future," and "Make a plan, then follow that plan."
 2.5 CH. 2 : FINANCIAL PLANNING

. PRACTICAL BENEFITS TO FINANCIAL PLANNING

Financial planning helps you to:
♦ Increase your . .
· not 1mposs1ble .
fin .al l . . g.. It Is
savin to save money without a
ancI P an will -It be efficient that is something to be thought about.
·When you ·m_ake a_ financial plan you become aware of y01rr income and
e_~nses.which ~ help you 'in keeping track of them and assist in prac-
!1sing cost c~nsc1ousness, which will automatically help you in increas-
mg your savmgs in the long run.
♦ E_njoy a better standard of living: It is assumed th:at high monthly
bills and EMI repayment s hinder your living standards. ff is not true. A
well-developed financial plan will help you to honour your obligations on
time, meet all your expenses and still enjoy.a comfortable and stress-free
life. · ·
♦ Be prepared for emergenci es: l'he creation of an emergency/contin-
gency fund is a must~It is the first st~p towards a stress and anxiety-free
life. Ynexpecte d financial distress_can affe~t your mental health, which
in tuni aff~c~ your perfo:rman~e,:which ultimately resqlts in a loss of
income stream. Thus, ~t is advised to .m aintain a &µid. equivalent to 6
months of your expens,es. . .· _. ._ , · _
·♦ Attain peace of mind: A person practi:sing financial planning is able to
manage his/her finances properly and:have a peaceful.mind. Sometimes ·
you might hit rock bottom, but you should not be discouraged because
ultimately you will reach your goal if you stay disciplined in the path of
your goals. It might take you some time, but you will reach the stage of
financial peace.
NEED FOR FINANCIAL PLANNING
The financial plan serves as a guide as yqu go throughHfe 's journey. It helps
you to manage your income, expenses, and investments in such a way that you
can manage your finances and achieve your goals. You need to have enough
money to achieve your goals and desires. . · ·
Personal finances can help us increase our cash flow. Keeping track of our
expenses and usage patterns enables us to increase our revenue. Careful planning,
careful spending, and careful planning ensure that we do not lose the money
we have worked hard for. ·
A well-cl fined pbn ensures that you do not deviate from them. It reduces the
men.tal et and anxiety related to financial well-being. If the goals are well
sress t • th · · rd
de.fined in the planning process, one can cus omize e strategies in_o er to
attain them. -
We all agree that everyone t~ve~ w~e~ _appreciated for one ~chievement.. As
uo ttam· als your life, it will give you a sense of achieveme nt which
in·
J 1;1 a your go • d 1: fu al
will further act as a motivator to stay motivate 1or ture go s. ·
 UNIT 1: FINANCIAL PLANNING AND BUDGETING

Person al finances include concepts relate d to mone y. mana geme ~t, savings
and investment. It includes banking, budge ting, d~bt, investment, insurance,
retirem ent planning, and tax planning.

--· . IUMOH HlfDMffJ 1

1. What do you mean by financial goals? List out some of the commonly
..
identified financial goals.
2~ Explain different types of financ~al goals.
3. What are the attributes of a sound financial goal?
4 .. What is financialplanning? Menti on the steps in financ ial planni ng.
5. What is the need and benefits of financial plann ing?

IUMIIMIIIIMif1♦ ·
1. After learning in detail about financial goals and financ ial plann ing, you
were keen to share your knowl~dge with your elder, brothe rs/sist ers.
While talking with you they disclbs·e d that they never thoug ht about
developing a formal financial plan for their life goals. They asked you
for your-help. You are required_to help them to analy ze (using SMART)
and set their financial goals and dev~lop a well-structured firiancial plan.
Document the whole process. i • ·