It is said that planning is the key to success, and it applies to both individuals and businesses. A financial plan helps people achieve their life goals and provides a clearer picture of finances and strategies to reach those goals. 

Businesses need to be aware of the basic details of financial planning as it helps them prepare for the future. A good financial plan addresses different areas of finance, such as taxes, investments, cash flow management and retirement. 

What Is Financial Planning? 

Financial planning is the process of formulating a plan to manage one’s current finances to fulfil financial goals in the future.

It is important because it helps people and businesses achieve financial security and build wealth. 

Here are the objectives of financial planning

  • It is useful for framing financial policies, especially for borrowing, lending and cash flow.
  • It helps a business determine its short-term and long-term capital requirements.
  • An important aim is to ensure the availability of funds for unforeseen and unavoidable circumstances.

Objectives and Importance of Financial Planning


1. To ensure financial security: The primary objective of financial planning is to ensure financial security for an individual or family. It helps to identify and plan for upcoming financial needs and goals.

2. To achieve financial goals: Financial planning helps to identify and prioritize financial goals and develop a plan to achieve them. It also helps to evaluate and adjust the plan as to changing needs and conditions.

3. To manage investments: Financial planning helps to manage investments and use the available resources to the maximum benefit. It helps to identify the best investment opportunities and maximize returns.

4. To build wealth: Financial planning helps to build wealth in the long term. It helps to identify and plan for the most effective way to grow wealth and achieve financial freedom.


1. Financial Stability: Financial planning is important to ensure financial stability and security. It helps to identify and plan for upcoming financial needs and goals.

2. Goal-oriented: Financial planning helps to identify and prioritize financial goals and develop a plan to achieve them. It helps to stay focused on achieving the goals.

3. Risk Management: Financial planning helps to manage risks associated with investments and use the available resources to the maximum benefit. It helps to identify the best investment opportunities and minimize the risk of losses.

4. Wealth Creation: Financial planning helps to build wealth in the long term. It helps to identify and plan for the most effective way to grow wealth and achieve financial freedom.

What Are the Important Components of Financial Planning? 

Let us take a look at the critical components of financial planning

  • Investment Planning

Choosing various investment options to fulfil one’s economic aims is referred to as investment planning. Financial planning gives people a clear idea of how much they need to invest. Therefore, evaluating risk appetite, investment needs, liquidity options, and rewards is essential for a proper financial plan.

  • Cash Flow Planning

A vital objective of financial planning is to make sure that one has enough money to fulfil his/her life goals. Tracking income and making budgetary allocations are essential parts of cash flow planning. It helps businesses maintain a proper balance between income and expenses. 

  • Insurance Planning

Carefully choosing and purchasing insurance policies per one’s needs is an integral component of financial planning. In addition, many people consider insurance planning a way to mitigate risks because it helps policyholders and their families deal with unforeseen circumstances. 

  • Retirement Planning

Allocating a portion of one’s total income for retirement is described as retirement planning. Generally, people start retirement planning as soon as they start earning, considering increasing living costs and inflation. People can consider taking the help of financial advisers if they face any difficulty with financial planning for retirement. 

  • Estate Planning

Estate planning is described as the passing down of finances and wealth from one generation to the next. The term ‘estate’ encompasses an individual’s total property, whether real or personal, before the formulation of a will or trust. The crucial benefit of estate planning is that it secures the future of an individual’s loved ones. 

  • Tax Planning 

The optimum usage of tax exemptions, rebates and deductions to reduce tax liability is referred to as tax planning. To do tax planning effectively, people need to evaluate their financial position from the point of view of tax efficiency. It is an integral part of financial planning because it helps to increase savings even after fulfilling one’s legal obligations. 

How to Create a Financial Plan?

Given below is a short step-by-step guide for financial planning:

Step 1: Evaluate your financial position.

Step 2: List your financial goals and categorise them based on short-term (up to a maximum of 2 years), medium-term (2 – 5 years) and long-term (exceeding 5 years). 

Follow the SMART (Specific, Measurable, Adjustable, Realistic and Time-Bound) strategy for defining financial goals. 

Step 3: Make a budget. It is a plan to make maximum use of your money to fulfil your economic aims. Chalk out a way to maximise your savings. 

Step 4: Keep aside a fund for financial emergencies. This fund must be sufficient for six months’ worth of expenses, such as EMI payments, household and education.

Step 5: Select the investment options as per your goals. Your portfolio needs to achieve the right balance of equity and debt as it will help to fulfil investment objectives within a preferred tenure. 

Step 6: Put your financial plan into action and review it periodically. 

For businesses, especially start-ups and SMEs, financial planning is a bit more complex though essential for managing day-to-day operations. They can rely on the professional services of RazorpayX to simplify their financial operations and focus on automation.

Important Factors to Consider for Financial Planning 

Listed below are some points that would be helpful for individuals in their financial planning:

  • Evaluate whether the emergency fund is sufficient or not. People need to address important questions such as:
  1. Would they be able to afford long-term medical care if they fell ill?
  2. Can their dependents cope financially if they become unable to earn anymore?
  3. How long can they live without a regular flow of income?
  •  A thorough research on tax exemptions and deductions before tax planning is very helpful for financial planning. This is because savings on tax payments every year can lead to considerable gains.
  • People need to remember that their priorities are subject to change. So, while making a financial plan, they should also keep in mind that life events such as marriage and the death of a spouse and children may require them to alter their plans. 

Financial planning may come across as an intimidating process, but it is not so. It is all about taking into account every aspect of one’s financial life and setting up a plan to help the person fulfil his economic aims. Every established business knows the importance of having a financial plan in place. Newer ventures can opt for RazorpayX to implement their plans and focus on growth.

How Can RazorpayX Help Businesses in Financial Planning? 

Opting for RazorpayX can be an important part of financial planning for businesses. Discussed below are some of the reasons: 

  • This one-stop banking solutions platform allows business owners to open current accounts, pay taxes, schedule payments, pay vendors seamlessly and check invoices from a single dashboard. This saves valuable time and effort. 
  • It is an accounting and banking platform that fills the gap between advanced banking solutions and finance professionals. It allows easy accounting software integration.
  • With RazorpayX Payroll, businesses can automate salary payments and provide insurance policies to their employees. 

Frequently Asked Questions

Can I do my financial planning?

People can do their own financial planning. They can hire professionals as well. Multiple online free calculators help to estimate investment needs. While preparing an effective financial plan, people need to incorporate tax planning, cash flow planning and retirement planning, among others.

Is it worth seeing a financial planner?

It varies from one person. People can always formulate their own financial plans if they are confident. On the other hand, financial planners would be able to sync their knowledge of investment markets with personal financial situations.

When is the right time to start financial planning?

The earlier a person starts, the better. According to experts, people need to do financial planning as soon as they start working. People who have worked for a while but have yet to have a financial plan in place do not have to worry. They can start as soon as they can.

What consists of a person's financial position?

Generally, an individual’s income, assets and liabilities make up their financial position. The money left after a person receives his monthly income and fulfils his monthly expenses is referred to as balance. A healthy, positive balance is vital to help people meet their financial goals. In addition, more assets and lesser liabilities help people improve their financial position.

What are important suggestions for effective budgeting?

Here are some key suggestions for effective budgeting:
Have a clear purpose or objective.
Ensure that the budgeting process is simple and easy.
Review your budget regularly.
Have the plan to deal with surprise expenses.

What Is the Purpose of a Financial Plan?

The purpose of a financial plan is to provide a roadmap for achieving financial goals. It should include strategies for budgeting, saving, investing, reducing debt, and protecting against financial risk. A financial plan can also help you track your progress towards your goals and make adjustments as needed.

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    Aratrica Chakraborty
    Author Aratrica Chakraborty

    Content Marketer. Travel&Scuba enthusiast.Makes the best Vegan Coffee.

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