How to Make a Financial Plan: A Step-by-Step Guide

A financial plan is simply a written answer to three questions: where am I now, where do I want to be, and what do I do each month to get there? One page is enough.

What are the steps in a financial plan?

Step 1: Work out your net worth

Add up what you own, then subtract what you owe. This is your starting point, and tracking it yearly is more useful than checking your portfolio daily.

Step 2: Understand your cash flow

Review three months of statements. Use the 50-30-20 rule as a first check on your spending.

Step 3: Build an emergency fund

Aim for 3 to 6 months of expenses, or more if your income is irregular. Here is how to build it.

Step 4: Protect your income and health

Term life cover is often sized at 10 to 15 times annual income if others depend on you. Health cover should be separate from what your employer provides, since that ends when the job does.

Step 5: Clear costly debt

Pay off credit cards and high-interest personal loans first. Paying down that debt is a return you can count on.

Step 6: Put a number on each goal

Use the SIP Need Calculator for each goal, and the Retirement Planner for the biggest one.

Step 7: Automate and review

Set your SIPs for just after salary day. Once a year, update your numbers, rebalance and raise your SIPs.

Should I hire someone to make my financial plan?

You can start on your own with the steps above. Consider professional help if you have several goals, an uneven income or a large sum to invest. Learn who does what before you choose, or book a call with Vikas.