Before we try to find an answer to the question, let us understand what is financial planning?
Background
1. We are all living in a world where availability of money/cash or accessibility to money/cash is what
determines the level of luxury one enjoys in life. To be in position to have sufficient money one has to be
productively employed or engaged profitably, be it as an employee or as self employed. It is possible
for a person to work only upto a certain age as productivity tends to come down as the age progresses.
The normal productive years can be said to be in a range between 23 – 60 years. Beyond 60, a person
will have to create income streams from corpus created from his earlier savings (during productive
phase of life) to serve for the entire life time post retirement.
2. Maslow‘s hierarchy of needs model postulates that every human being looks to fulfill firstly the
physiological needs (food/clothing/shelter) followed by safety needs (job security/social security). Once
these basic needs (physiological and safety) are met, individuals needs to secure a standing in society in
the form of love/belongingness followed by esteem (Recognition/wealth). These four needs are
categorized as deficiency needs. Once the four needs are met, man will like to work in a self motivated
manner without requiring directions. We will be concerned in financial planning with fulfilling the first
four needs as they have a financial connotation in the sense that everyone will have to create income
resources to meet these needs as long as one lives.
Element of Financial Planning
What the above discussion boils down to is that man will have desires/wants continuously throughout
his/her life. To meet these desires/needs (also referred to as Goals) he/she will have to arrange the
finances through ‘Income Generation in excess of his expenses’ either from occupation or
savings/investments. An organised approach for creation of necessary finances to meet the financial
goals can be broadly referred to as “Financial Planning”.
Financial planning can be broken up into three elements
1. Identifying life cycle goals of a person and allocating monetary values to these goals.
2. Estimating, as to when these goals will materialize and the finance required for satisfying
these goals at the material time in future.
3. Strategising and preparing a detailed plan of investment to have the calculated finances in
hand at the material time in future, depicted pictorially below:
How does one become a financial planner?2 min read
