6 Step Simple Personal Finance Planning: Don’t Read If You Plan Your Personal Finance Wisely

Do you believe that personal financial planning is a complex task ?. I think no, and many of us believe the same. So try to please answer whether you did plan your personal finance wisely ?.

If yes, you can stop here, and I think this article may not be for your attention.

In this article, we try to answer how to do personal finance planning wisely.

Why Personal Finance Planning Required?

Personal finance is managing your finance for achieving your short and long term financial goals.

It means the application of self-discipline on your income to plan and secure your future. Personal finance planning only will lead you to the ultimate financial freedom.

personal finance planning

Basics You Should Know Before Starting a Personal Finance Plan

You need to be careful to follow the below-mentioned points when you plan your personal and investments.

Spend less than what you earn
Share your Account Details with your Spouse or parents
Ensure the Saving accounts available Nomination Facility

Spend Less than What You Earn

The basic concept behind personal finance planning is to spend less money than you earn. We can clarify it as our spending is equal to Earning minus savings. 

Spending = Income - (Savings + Investment ) 

When you start personal financial planning, keep in mind that it should be a simple plan. As we need to follow this plan in our day to day life, a complex one will not work.

Suppose you approach a Financial Consult for a financial plan, he advises you to follow complex investments and insurance plans, it is believed that it is not a good financial plan.

Share Your Account Details with Your Spouse or Parents

As a part of our plans to manage personal finance, we may have many financial transactions, Bank and Demat accounts and internet login credentials.

Most of the cases, one person only knows these credentials in a family. It is utter foolishness. In case of an unexpected departure (death) of the person dealing all these credentials, nobody can retrieve this information.

In some cases, the family members are unaware of what investment and savings he has.

To avoid these kinds of problems, we recommend you to prepare an Excel sheet or Google sheet for all the account details.

Mention its corresponding online user credentials. Whenever it changes, it also needs to update in this sheet and save it your computer or laptop. 

You must provide access to your spouse or parents to these excel or google sheets. So it is easy to retrieve all the account details, insurance policies and other investment stories in your non-availability.

You also required to keep a file for all the documents relating to your savings, investments and liabilities. In your absence, it is easy for your family members to find your investments and other financial transactions.

Ensure Your Accounts updated with Nomination

To plan personal finance, by considering the long term and short term objectives, we may start many types of investment plans like SIP, investment in Stock or PMS etc.

At the time of the opening, please give serious consideration to provide your nominee details in its records. It will help your family members to easily claim these funds in an unfortunate event.

To start a good and simple personal finance planning, we need to follow some basic steps. It may  be the main components of their plan

These are the basic components.

(1) Prepare a Clear and Feasible Plan
(2) Keep an Emergency Fund
(3) Zero Liability or Settle all your Bad Credit
(4) Reduce your financial risk
(5) Invest for your long term financial goals including retirement
(6) Go for Proper Tax Planning

We can have a detailed discussion

1. Prepare a Clear and Feasible Plan

You must require a feasible plan for your financial success.  This planning process is called budgeting. It is the first step in personal finance planning. 

Without planning your earning and corresponding expenses, it is meaningless to follow personal finance planning process of any kind.

We need to stick on the defined budget with ample flexibility. It means we need a clearly defined saving and spending plan and if there is any short in your earning for the month, we need to adjust all these plans.

Budgeting is the process of planning your income and expenses. You can use an excel or google sheet to prepare it. 

When you start the process of planning or budgeting, it must be kept in your mind that once you get your monthly salary or income, the first step is to allocate for your investment and the balance only you can use for spending.

Usually, we tend to adjust with the money left in our purse. It is common that if we have more money in our hand, it may attract our attention to some sort of unwanted products.

Here, we need self-discipline, but it is not against our pleasure moments in life to an extent

2. Keep an Emergency Fund

This emergency fund is your Saving Account balance, meaning the money which you did not spend. It is liquid cash available with you when an emergency arises. 

Based on the liquidity, you can decide the form of this saving.

It may be kept in your savings account or even short term investment, as the money in the Savings Account is easily accessible by ATM, and it will rend to spend more.

(i) How much You need to Keep as an Emergency Fund.

As this is an emergency fund, when you lose your job, or any other financial crises happen, you can manage it with these emergency funds.

Based on the lifestyle and monthly minimum requirements, this amount may vary. We recommend keeping at least your 5 to 6 months salary as an emergency fund.

Once you have these funds ready, it will increase your confidence in building a strong foundation in your personal finance planning.

Most of the cases, the fear factor works in savings. Fear of tomorrow will pull down our intention to save.

3. Zero Liability or Settle all your Bad Credit

You need to settle all of the bad loans immediately. Bad loans mean all those loans with high-interest rates. It includes the credit card, personal loan etc. Along with your savings planning, you need to have a clear goal to settle these loans.

If there is a chance to avoid using the credit cards, better to do it or manage it wisely. 

We recommend that you settle these kinds of loans before you start a savings plan. Once you are free from the bad credit, you can start the savings. 

We can not say housing loans are bad loans. It creates an asset and the interest rate may be less. Chances are there to claim a deduction from income tax liability.

4. Reduce Your Financial Risk

You can reduce your financial risk through insurance. Insurance is meant for the security of your family also.

When it comes to personal finance planning, it is noticed that people are buying many insurances for same purposes. Most of the insurance policies taken not for the insured’s interest or requirement. 

Here, what we recommend to buy only two types of insurance 

(i) Term Insurance
(ii) Health Insurance

(i) Term insurance

We recommend separating insurance and savings. The purpose of both saving and insurance is different. For fulfilment of your insurance needs, you can buy a Term Insurance.

Term Insurance is a type of insurance which provides financial coverage to the policyholder. It is a pure risk cover plan.

Suppose a person insured with term insurance, he needs to specify the period at the time of buying a policy.

Suppose it is 20 years. If the insured dies within this selected period, the beneficiary will receive the death benefit.

(a) How much should be the  Death Benefit for the Term Insurance

Suppose You are the only person to earn income in your family, the sum of life insurance coverage will be up to 20 – 25 times of your annual salary.

For example, your monthly salary is INR 50,000. The required coverage calculated as 

 (50,000 X 12 ) X 20 =  INR 120,00,000

You can use the variable as per your requirements like lifestyle and future commitments.

You can avoid this insurance in case you have a large corpus invested and the interest or profit generated from these investments can save your family when you are not around.

(b) How many Term Insurance Plan required in Your Home

We can say that it requires all of your family members who all are earning.

 Suppose you are married, both your wife and you earn income, it is required to have a separate term insurance plan for both.

(ii) Health Insurance

Health insurance ensures the medical or surgical expenses incurred for the insured person during the validity of their policy.

The cost of medicines and hospitalization is increasing dramatically. If you are concerned about the well being of the members of your family, it is required to have health insurance.

It needs to cover all of your dependents.

The amount of health insurance is determined by your financial ability to pay the premium and ability to pay the medical bill from your savings.

We can say that minimum health insurance of One Lakh to One and a Half Lakhs rupees per person is required.

5. Invest for Your Long Term Financial Goals including Retirement

Many types of investment options available to us and all these are directly associated with risk. Risk and return move parallel. Before starting your investment, it requires you to assess your risk profile. 

We need to decide the risk appetite first. It means the depth of risk that you can accept. Based on this, we can decide the percentage of allocation in a different type of risky investments.

Investing is an important step in the process of planning personal finance. Investment planning is normally to fulfil a particular objective. It may be for the education of the children or marriage of daughters etc.

There are many types of investment opportunities for a long time. It may be investing your hard-earned money in shares, gold or real estate.

(i) Shares

Investing in shares required expertise in selecting the best shares for the long term. It necessitates analysing the risk contour of the investor.

There are many free and paid online tools available or consulting with reputed Financial Consultants also will help to get advice.

(ii) Mutual Fund

Investment in mutual funds is the right one if you don’t want to get involved in the selection and interpretation of the individual stock and securities.

A mutual fund is a common pool of fund with a diversified portfolio to maximise profit.

All these funds are run by expert fund managers, and it is crucial to be confident of his expertise before investing in the mutual fund.

Even Systematic Investment Plans (SIP) are also available in the market with the affordable denomination to start the habit of saving.

(iii) Gold

Gold is an integral part of our portfolio. We have an emotional attachment to it.

Buying gold ornaments is not recommended for investment. It may attract several deductions when we transact in future.

If you wish to invest in Gold, the best scheme is the Sovereign Gold Investment plan. 

(iv) Real Estate

Investment in real estate is not a good investment plan in connection with your personal finance planning.

You can invest in land as in most of the cases, the price of the land will increase in the long run.

Buying homes or apartments as an investment apart from your residence is not a good idea.

It incurs annual maintenance and other paper works.

6. Go for Proper Tax Planning

If you make a considerable amount as your earning, you require to do genuine tax planning. Remember, it does not mean tax evasion.

For tax planning in association with your personal finance planning, we know only Section 80C., But there are several sections available in the Income Tax Act 1961, for reducing the tax liability.

They are given below.

Read: e-Filing ITR: 4 steps to File Your Income Tax Online

  1. 80CCD – National pension scheme
  2. Section 80D: Payment of health insurance premium
  3. Section 80E: Repayment of an education loan
  4. Section 24: Interest payment of a home loan
  5. Section 80EE: Interest payment of the home loan for first-time buyers
  6. Section 80EEA: Interest payment of the home loan for first-time buyers
  7. Section 80EEB: Interest paid on loan taken for the purchase of an electric vehicle
  8. . Section 80G: Donations to charitable institutions
  9. Section 80GG: Rent paid for accommodation
  10. Section 80TTA: Interest from Saving Bank Account
  11. Section 80TTB: Interest from deposits in case of senior citizens
  12. Section 54: Long-term capital gain on the sale of the residential house
  13. Section 54EC: long-term capital gain on the sale of land, building or both
  14. Section 54F: long-term capital gain on the sale of a capital asset other than a residential house


All these personal finance planning processes described based on our practical experience. This planning process depends on your own needs. A readymade plan will not work for everyone. You can plan your entire finance based on the steps by giving personal considerations to it. If you feel that it is a complex one, then you can consult with experts available in your city. Please comment below if you need any clarification regarding the steps mentioned above.

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