Financial Planning is a highly mundane subject and often ignored by everyone. It is, in fact, according to many surveys, touted as one of the most painful things that individuals fear to do. However, the importance of financial planning cannot be overstated. A good financial plan is critical to an individual’s ability to seamlessly meet their financial goals and tide over bad times. 

So how does one make a financial plan that is effective, efficient and long-lasting? 

Let's start with a list of 5 things that individuals should know before starting a financial plan that helps make a plan that ensures resilience throughout a lifetime. 

Expenses and Goal Identification - Though it might sound trivial, it is absolutely critical to assess one’s expenses to determine a proper financial plan. Expense identification is crucial not only to help save more but to many other factors that a financial plan requires, from calculating one’s Human Life Value ( used to determine insurance needs) to calculating the retirement kitty required. 

One important fact here that many people overlook is a lot of expenses we do not foresee and forecast, viz. Home upkeep expenses, gadget replacement expenses, 

Also, in cases where the user is young, they should consider inflexion of expenses post marriage and kids and not extrapolate only the current expenses.

Inflation -  Often, we see in the media about inflation nos. These are generally around 5-7%, but do we look deeper – the numbers we see are of a general basket, and wholesale prices and our own household/lifestyle budget could comprise vastly different things, and the actual inflation nos we face could be much higher.  This, along with the fact that we at times tend to measure goals in today's prices leads to a severe underestimation of our financial goal nos which tends to create a big dent in our financial plans. This makes it very critical for every individual to check inflation according to their goals and lifestyle and not rely on general numbers for financial planning/ estimation.

Liquidity and Loans -  Again, one of the biggest reasons for individuals going bust much earlier in their lives is due to liquidity traps.  Undertaking large amounts of loans for purchasing depreciating assets like cars, personal loans etc. and also large real estate parcels for which their EMI’s start comprising of > 75%-80% of their total incomes leading to a large liquidity trap, in such cases, any unforeseen expenses can derail and/ force these individuals to forego/sell their real estate or other assets at distressed valuations leading to complete breakdowns. Individuals, on a generic basis, should ensure that EMIs do not account for more than 50% of their incomes and that they save 20% net of all expenses, EMIs.

Nominations/ Wills and Succession Plans -  A large number of family, friends, and users of our website, we encounter, have hardly ever paid attention to how easily their families can access their investments/sums of money in case of any unforeseen event.  We have automated tools that detect a lack of nominations, and on average, we find at least 3/4 of investments that are not nominated. Any investment that is not nominated becomes a big ordeal for anyone who has to claim that asset. This ordeal can consist of a long time to get the asset and a fair amount of expenses. This is the last thing you would want your loved ones to go through when facing any such emergency. 

A few important aspects of this is

a) Ensure all investments, bank accounts, Demat accounts, and insurance policies are updated and nominated. Carry out a semi-annual check of all accounts to ensure this is complied with

b) A will also is quite helpful in many cases, especially if there are multiple immovable assets or complex family structures – unlike popular perception, wills can be easily made nowadays online as well, and it doesn’t warrant legal hassles or court visits etc

c) Keep your family Informed about your investments, style of functioning, principles and stakeholders, viz. – Bank Relationship managers, lawyers, CA etc – A document containing all such information is very, very helpful.

Simplicity and Ease - A good financial plan is always simple and easy to understand, monitor and review. Complex financial plans generally don't see the light of the day in terms of implementation beyond a few quarters or cycles. It should also be something that can be easily taken care of by your family members and followed in case of unforeseen circumstances.

Apart from the ones listed above, there are multiple other factors that a good financial plan needs, like a provision for emergency funds, a good mix of fund managers, assets and a knack for not trying to do too much. It is critical for success in life to have a good financial plan and a good advisor helping you.