What is Financial Planning | How to be a Financial Planner

Financial Planning

This course will make you a financial planner. You will save more & invest better using mutual funds. It is imperative for you to understand how to grow your wealth, not through a fixed deposit but investing in equity. You will also learn how to buy insurance, create an emergency fund & optimise your daily expenses. This course is result oriented and demands you to complete exercises and worksheets to progress. In fact, we will begin with a quick test.


Quick Acid Test I need you to get a pen and a diary. Open Microsoft word if you don’t have a pen/paper handy. Make two columns by drawing a line at the centre of the sheet. Title it Quick Income & Expenditure. The right column has all your earnings and the left all your expenditure. We will work with ballpark figures here so do not get to worried about being precise.

Put in all your income over here. For Raj his salary is Rs 50,000 per month. If you have any other income put it right there. Now on this side, lets put in the top 5 expenses every month, just put down what comes to your mind. For Raj its Rent Rs 11,000, Rs 4,000 petrol, Rs 5,000 home groceries, Rs 6,000 shopping and Rs 7,000 for eating out, movies & entertainment. Raj left with Rs 17,000 per month.


Whether you got a smaller and larger number than this does not matter – the point is to understand if we can meet our goals with the current financial situation. Have you got your monthly surplus written?


Out of 17,000 surplus, Raj wants to invest 10000 per month that is 1.2 lakhs per year. Now fixed deposit will fetch him 8% per annum and in 10 years the final corpus would be 17,81,000, that is impressive. But this income is taxable. Raj falls in 20% bracket and after tax deduction he will be left with just 14,24,000.The next question you need to ask yourself is if these savings are enough or not.

Financial Goals

Think about your goals; long term ones which you may want. Let me suggest a few: A home which costs 50,00,000 in 2015. A college education which costs Rs 5,00,000 in 2015 and much higher for an education abroad. A car costing Rs 10,00,000 in 2015. There is a reason I mention the goal with the year 2015. You see in a fast developing country like India inflation will always be high.


The average historical inflation of India is 9.064%. This is an invisible cost that drives prices up; lets have a relook at the dream goals after 10 years in the future. – The home which costs Rs. 50,00,000 in 2015 will cost about Rs.1,19,06,503 in ten years – A college education which costs Rs.5,00,000 in 2015 will be Rs.11,90,650 – A car costing Rs 10,00,000 in 2015 will be Rs.23,81,301 You see, everything more than doubles in 10 years, will your income keep up that pace? We should not have to rely on a salary raise or your company growing by leaps and bounds. Personal finance is about meeting your goals without compromise to your current lifestyle. Its about not guessing, but planning.

Unplanned Expenses

Also consider the following possibilities. It is imperative to spend your time in understanding how to grow your wealth and as I said you need to keep up with the inflation at least.


Equity is a great place to invest if you know how. So lets compare equity with fixed deposit. Rajs investment in the fixed deposit fetched him 14 lakh in 10 years but what if he invested in equity instead. From 2001 to 2014, the average stock market return was 21%. In the same 10 year period, the savings would have grown to 36 lakhs and 98 thousand. Thats more than twice the fixed deposit return. This shows that there is a way to meet your goals without compromising on your current lifestyle; all it takes is a bit of planning.

This course will teach you how to fine tune your finances: Managing Expenses Where is your money going? Lets make a detailed sheet of what we made earlier but this time we need to be more specific. You will find the excel sheet to track expenses in the course materials along with other resources. Open the excel sheet and fill it up in the following way Right side row will include income from all the sources. If you will sum up your whole income, it will give you Total income.

Left side row will include your expenses like House rent, electricity, groceries, phone, internet, commute (petrol, bus, train, plane), education expenses, health expense, Workers at home (house help, gardener, cook, driver), Premiums on insurance, health, term or mutual fund investment, EMIs per year (including credit card debt), you can add more rows. Sum up all your expenditure and you will get Total expenditure. Your excel sheet will automatically subtract your total expenditure from your total income which will give you Surplus. If you have any money left in bank you can add up that too.

Total Income-Total Expenses= Surplus Just doing this exercise alone helps understand your life so, so well. Now you know exactly what your expenditure and income is and what is left surplus every year. Now we know the running stream of income, lets calculate the assets and liabilities.

In the next sheet you have to place assets and liabilities. Asset: Cash, Mutual funds, Stocks, PPF/EPF Life insurance policy, Gold, Real estate, Bond, Fixed deposits. Add up all of them Liabilities: Home loan EMI, Car loan EMI, Education loan EMI, Personal loan EMI, Business loan, Any other loan. Add up all of them If you will subtract assets and liabilities, it will give you excess of assets over liabilities and excess of liabilities over assets.

Start Exploring

If you are finding it bit difficult to use excel sheets, you can also use applications on your mobile device designed especially for these purposes. Some of them are Mint.com I expense diary Money view financials Buy hatke etc In the next few lessons we will learn about Life insurance, Health insurance, Goal settings and how to invest your savings.

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