• Webpages
  • Documents
  • HDFC Life ClassicAssure PlusInvestment
  • HDFC Life ClassicAssure PlusInvestment
  • HDFC Life ClassicAssure PlusInvestment

For NRI Customers

(To Buy a Policy)

(If you're our existing customer)

For Online Policy Purchase

(New and Ongoing Applications)

Branch Locator

For Existing Customers

(Issued Policy)

Fund Performance Check

Basics of Financial Planning a Complete Guide

March 28, 2024


Financial planning serves as a guide for both individuals and corporations in achieving their financial objectives. Its contents are an analysis of your current financial standing, setting reasonable goals, and developing strategies to reach those goals. In layman's terms, it's a manual for improved financial management. This article defines what is financial planning, discusses its benefits, and explains its purpose, all of which emphasise the significance of financial planning in negotiating the complex terrain of individual and business finances.

What Is Financial Planning?

What is financial planning definition? People should engage in financial planning to better prepare themselves for and deal with any future financial obligations and difficulties. Financial planning encompasses many different areas and could include many other types of services. Clients are seen as distinct persons with various requirements and goals, leading to a more comprehensive approach to financial planning. Several monetary facts are considered to ascertain the optimal method of assisting people in living their lives to the utmost.

What is the Purpose of a Financial Plan?

So after learning the financial planning meaning, let’s have a look at the purpose of economic plan. The following are some key objectives:

  • A financial plan may help you set realistic and measurable financial goals. A well-structured plan will show you the exact steps to retire comfortably, buy a home, or grow your business.
  • A person engages in financial planning when they take stock of their income and expenses and work to create a spending plan that supports their goals. Keeping track of one's money is essential for paying bills on time and putting money aside for the future.
  • Market volatility, inflation, unexpected expenses, and the possibility of a decline in income due to illness or disability are just a few risks that financial plans account for. To mitigate these risks and protect against financial issues, the approach includes steps like having insurance and an emergency fund.
  • Effective tax planning is a cornerstone of responsible money management. By understanding the impact of different financial decisions on their tax liabilities, individuals may properly seek ways to minimise their tax burden and optimise their after-tax benefits.

What are the Different Types of Financial Planning?

Extensive services may be presented to you by a financial planner. It is usual to consider these services together. If your planner is aware of your current situation and your long-term objectives, they may be able to integrate them more effectively into the plan. Typically, financial planners provide eight different services:

  • Tax Planning 

  • Tax advice is a common part of a financial planner's service. Not only that, but they could even figure out how to maximise your return while decreasing your tax liability. Some advisors can help you file your taxes or prepare them if you ask them nicely.

  • Estate Planning 

  • One purpose of estate planning is to make life easier for your loved ones when you pass away. Financial planners may assist customers in creating a will as part of their business. Start paying annual taxes if you fear you could be liable by planning.

  • Retirement Planning 

  • You should start putting money down now to retire from your work when the time comes. Get yourself prepared for retirement with the help of a retirement planning service. They check that you have saved enough money to live comfortably in retirement.

  • Philanthropic Planning 

  • Philanthropic planning allows you to perform good deeds like helping those in need or funding a cause close to your heart. With proper financial planning, you may easily take advantage of all the tax deductions for which you are eligible.

  • Education Funding Planning 

  • If your children or other dependents indicate an interest in receiving financial assistance to cover the cost of college, you should take the necessary steps to make that happen. A well-planned financial strategy may help you achieve your goal.

  • Investment Planning

  • Even though financial planning often involves asset management, it helps with your investment portfolio by deciding how much to invest and what to invest in.

  • Insurance Planning 

  • Insurance needs might be better understood with the help of financial planners because they are also licensed insurance brokers; some financial advisers may even be allowed to sell you insurance policies directly. Still, the commission they will likely get creates a potential conflict of interest.

  • Budgeting 

  • Making a budget is a crucial part of any financial strategy. By keeping your spending in check relative to your income, a financial planner may assist you in staying out of debt.

What is a Comprehensive Financial Plan? 

A complete and comprehensive financial plan should include all aspects of a person's or company's economic situation, goals, and initiatives. Financial planning enhances a person's ability to make prudent judgments and prepare for their financial future. Think of everything that may go wrong with your finances, such as changes in the market, inflation, illness, incapacity, or even death. You can assess your risk tolerance, savings, and insurance needs according to this strategy.

Key Steps to Create a Successful Financial Plan

To start this crucial process, follow the steps below to create a successful financial plan: 

  • Setting SMART objectives 

  • First things first when it comes to financial planning: setting targets. A SMART objective is defined as one that is relevant, concrete, measurable, and achievable within a specific time frame. To illustrate the point, a SMART goal would include more than merely expressing the intention to retire rich. But a SMART goal would be to put up five crores of rupees for retirement, ideally before you are sixty.

  • Make a Budget

  • If you want to achieve your goals without risk, you should invest all the money you can. This will require cutting down on wasteful spending and then reinvesting the money.

  • Develop an investment plan

  • In this phase, you will choose an investment opportunity. For instance, owing to their minimal risk, fixed deposits and mutual funds are excellent choices for short-term investments, but equities are better suited for long-term investments.

    A diverse investment plan includes gold, debt, Indian and overseas stocks, and bonds. How you allocate your assets is dependent on your risk profile, which requires you to assess your risk tolerance. For instance, you need to ask yourself whether a 20% to 30% decline in your portfolio is something you can live with. If you answered yes, you may invest in equities. But if they say no, you should reduce your stock allocation.

    This risk tolerance assessment considers many things, such as your age, salary, way of life, debts, responsibilities, etc. Looking at your character and how you deal with adversity could tell you a lot about your risk profile. Risk profiling has traditionally included categorising investors as conservative, moderate, or aggressive. 

  • Monitoring and Rebalancing

  • There is no such thing as a one-and-done investment approach. After formulating an investment plan, it is critical to track its development toward predetermined goals. At regular intervals, you should eliminate underperforming investment opportunities to provide space for more promising ones. You should also adjust your asset allocation regularly. If you don't, your investments can do something completely different from originally planned, leading to unforeseen outcomes.

When to Create a Financial Plan?

Building a financial plan is an action that anybody can do, regardless of their age, stage of life, or company development. There are several times and situations when it would be wise to create or evaluate a financial plan:

  • Making a budget to monitor income, healthcare expenses, and debt is essential in the early years when one has just started working. This is the time to set goals and build a solid financial foundation, helping you save money and focus on investing.
  • In a committed partnership like marriage, the partners often pool their resources and strive to achieve a common financial goal. The time is right to create a joint financial plan for shared goals, spending, and saving techniques.
  • Taking care of young children, paying for their education, and saving for their future costs all add up as a family grows. A financial strategy for the family's future may help with these expenses.
  • The purchase of a house is a big financial commitment that requires consistent savings. Using a budget will also help you evaluate possible properties in relation to down payments, interest rates, and monthly payments.
  • Whether you are beginning a new business, already at a new job, or preparing to retire, any shift in your position description might impact how much money you spend, make, and save in your long-term saving goals. They should revise their financial plan as quickly as possible to include any changes to their income, any benefits, or any ways they are saving for retirement.
  • Landmark moments of life, like succeeding in an inheritance lawsuit, being divorced, or being unable to take care of a spouse after he/she is dead, have profound financial consequences. A financial plan would be a way of moving through these changes, keeping your possessions away from harm and helping you not suffer when times become too hard for you.

Benefits of Financial Planning

Some of the benefits of financial planning include: 

  • Clarity and Focus 

  • By outlining one's goals and current financial situation, financial planning helps one focus one's efforts and resources where they will have the most impact in achieving one's objectives.

  • Goal Achievement 

  • No matter your financial objectives—a down payment on a home, retirement, or college- financial planning may help you remain on track and achieve them.

  • Improved Financial Management

  • Budgeting, cash flow analysis, and debt management are all parts of financial planning that lead to better control and utilisation of finances.

  • Risk Management

  • Through risk assessment and mitigation strategies, financial planning helps individuals and organisations protect themselves against unexpected events such as market downturns, health problems, or job loss.

  • Maximised Returns

  • By analysing investment possibilities, asset allocation, and tax refunds schemes, financial planners seek to maximise earnings while minimising losses and taxes.

  • Financial Security

  • A well-planned financial strategy may provide a safety net and encourage long-term economic stability, which may help individuals and their families ultimately become financially independent.

  • Peace of Mind 

  • When one has a well-planned strategy to achieve their financial goals and overcome challenges, they may relax and enjoy life.

  • Adaptability and Flexibility

  • Making necessary changes to financial plans enables individuals and organisations to be adaptive and flexible when faced with new opportunities and challenges.

Objectives of Financial Planning

Some of the objectives of financial planning are: 

  • Always be very specific at the time of setting financial objectives such as retirement, debt repayment, or investing. These objectives should be measurable.
  • Thoroughly assess your income, expenses, assets, liabilities, and cash flow to know where you stand financially and how to improve it.
  • Risk assessment determines the probability of adverse outcomes. One can then develop strategies to cope with them. These outcomes include market fluctuations, pricing changes, health issues, or income loss.
  • Long-term financial planning is necessary to ensure that all investments, resources, and activities are aligned with the planned results.
  • The core principle of resource allocation is determining the optimal distribution of limited financial resources among several critical demands, such as saving, investing, paying off debt, and living expenses.
  • Tax planning is the process of organising one's financial affairs to minimise taxable income, maximise eligible tax deductions and credits, and invest in strategies to postpone or avoid paying taxes completely.

How Much Money Do You Need for Financial Planning? 

The amount of money you'll require for financial planning is heavily influenced by your planner's price structure. Financial advisors who provide planning services often charge either a flat fee or an hourly fee.

By opting for a flat rate, you may consolidate all your financial planning expenses into a single payment. Your total cost of financial planning will be based on how complex your financial planning needs are. If your advisor uses an hourly fee structure, you'll have to pay a certain amount for each hour they spend on your project.

When a financial adviser or planner offers their customers investing advice in addition to financial planning, they may charge a wrap fee. A flat fee will cover all the advisor's expenses, including transaction and custody fees. Wrap fee rates are often calculated as a percentage of the client's under-managed assets or AUM.


A well-planned financial strategy that considers all aspects of your financial life may help you meet your responsibilities and achieve your goals. College funding, philanthropic planning, tax preparation, and estate planning are all a part of it. 


What is the meaning of financial planning?

Financial planning is an assessment of current financial status, establishing long-term goals, and formulating a plan to achieve those goals in the most efficient way feasible.

What is the objective of a financial plan?

A well-thought-out financial plan may help you achieve your financial goals, manage your money effectively, and secure your financial future.

What are the 4 basics of financial planning?

Establishing objectives, evaluating current conditions, formulating a plan of action, and monitoring and tweaking that plan are key.

Why is it necessary to create a Financial Plan?

A well-thought-out financial plan is critical for reaching financial goals, efficiently managing resources, and alleviating financial stress.

What is personal financial planning?

Personal financial plans are based on each person's unique circumstances, goals, and priorities regarding money.

What are the 5 steps of financial planning?

The five steps of financial planning are determining objectives, analysing current conditions, formulating a strategy, implementing that strategy, and following up with regular reviews and assessments.

What is long-term financial planning?

 In long-term planning, the financial goals span a long time, sometimes many decades. You must prepare ahead of time and carry out your plans to achieve your objectives.

What is short-term financial planning?

Short-term financial goals, such as creating a budget, setting aside money for unexpected expenses, and managing one's cash flow, are commonly achieved in a year or less.

Related Articles

ARN – ED/03/24/9975

Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

LinkedIn profile

Author Profile Written By:
Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

LinkedIn profile

Reviewed By Reviewed By:
HDFC life
HDFC life


Reviewed by Life Insurance Experts


We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.

#Tax benefits are subject to conditions under Sections 80C, 80D, Section 10(10D) and other provisions of the Income Tax Act, 1961.