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This blog will help you understand the financial planning process and the steps needed to meet your wealth creation objectives. 

Before we begin, though, we need you to have a clear mind and ask that you take a short break before you continue reading. Please spend five minutes focusing on this image–do nothing else. Visualize a future when you are financially free and clear your mind from unnecessary thoughts. Scroll down only after five minutes have passed.

The-Seven-Steps-of-Financial-Planning-Wealth-Creation-Objectives-Damned.com_ The Seven Steps of Financial Planning

Ok, great! We trust it has been five minutes and welcome back. Let us dive right in.

The financial planning process, the way we approach it, has seven steps.

     1. BUDGETING: The first step is to have a broad sense of your finances. How much income do you have each year, and how much are you spending? Consequently, what is available to you to save and invest? To learn more about the budgeting process, you can read our blog and check out a very helpful calculator here (“How do I make a budget and manage my income?”)

     2. RISK PROFILING: You then need to gauge the level of risk you are comfortable with. Some people are risk-averse and uncomfortable with losing even a little bit of money; they are willing to let go of potentially higher returns to play it safe. Some are extreme risk takers, willing to gamble a lot of their principal to strike it rich. And the rest are somewhere in between. There is no right or wrong–each of us has an inherent affinity or aversion for risk, and any approach is perfectly acceptable.

To learn more about the relationships between risk, return and risk profiling, you can read our blog here: (“How much risk should I take with my money?”). To understand your risk profile, you can do this simple seven-question survey:


     3. GOAL SETTING: The next step is to lay out your broad life goals–what do you want to achieve in life and ideally, by when? Then try and quantify the financial sum you need for each goal. Want a fancy car next year–how much will it cost? Want to send your child to college in ten years–what will be the corpus required to fund it? Keep inflation in mind–things will be much more expensive when you eventually purchase them, so account for that. If you need help in calculating your financial targets, please take a look at this blog and the very useful calculators here  (How much money do I need to be financially free?)

     4. INVESTING: You now know how much disposable income you can invest and what you need that wealth for. After that, it is simply a matter of investing your money into products that offer you the highest returns at an acceptable level of risk and within the desired time frame.

     5. CONTINGENCIES: We can never prepare for everything perfectly, and life will occasionally throw unexpected surprises at us. We should have contingencies in place if something goes wrong. Three basic contingency products you need are an Emergency Fund, Health Insurance, and Life Insurance.

     6. MONITORING: Once you have started investing in the appropriate products, you must monitor your portfolio regularly. Your life objectives, financial situation, and market conditions will change over time, and you will be required to rebalance your portfolio occasionally. Therefore, you need to keep track.

     7. WAITING: Once you have all of the above in place, it’s straightforward. You must have patience and wait, letting time and the power of compounding work their magic. Don’t panic when markets crash, and don’t celebrate when everything is rocketing up. Just stick to your plan and wait patiently. 

The job of a sound financial advisor (whether your banker, relationship manager or family member) is to guide you through the first six steps. And just as a doctor will not blindly prescribe medicines without understanding your symptoms and drug allergies, neither should your advisor recommend products without understanding your risk profile and long-term objectives. Look back at how much interest they have shown in understanding you as an individual. That should give you a sense of how good they are at their job. 

Your responsibility is to take ownership of Step 7–displaying patience and waiting. It is easy to get swayed by emotions, but you must not be affected by either greed or fear. A quick buck can be made or lost in minutes, but wealth is only created over time. So, look back to the exercise I asked you to do at the start of this article–how did you fare? That should give you a sense of how good you are at your job! 

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