7 Pillars of financial planning

What are the main pillars on which you can build the financial planning of your life? Find out the aspects that shouldn’t be missed.

7 Pillars of financial planning

Financial planning is an umbrella term that consists of various aspects of one’s financials. People often confuse financial planning as an exercise to sort out one's spending habits and to increase the saving propensity. While it is true, financial planning serves a much larger purpose in a person’s life, taking care of income and expenses as well as investments and compliances are a part of that process.

1. Income and expenditure monitoring: It is an integral part of financial planning. Under this activity, assessment of the cash inflow and outflow is conducted and whether the net cash flow is favourable or not is determined. If you are spending more than you earn, then you are going to miss your saving and investment targets. You will also have to assess whether your assets are sufficient to meet your liabilities, should you need to fall back upon them. If you don’t have adequate assets to cover your liabilities, any halt in regular income can expose your inability to meet your liabilities fully. 

To mitigate this problem, calculate your budget using the Monthly Budget Calculator now. It evaluates your financial standing on the basis of factors such as rent, age, city, income and lifestyle based expenses. The result draws a comparison between how much you spend and what your ideal spending should be. 

Related: Live in a metro city? Pay attention to these expenses, so you don't go broke.

2. Investment: Investment decisions are made based on your risk appetite, goals, timelines, and fund availability. Based on these aspects, your investment strategy is designed, and your portfolio is built. The extent of risk and diversification in your asset mix will define the income that your investments eventually generate. Putting all the money in shares may be risky yet profitable, while putting too much in debt instruments may yield very limited returns. Investments form an integral part of financial planning as they play a pivotal role with regard to your liquidity as well as your financial future. 

Related: Novice or expert, there’s an investment strategy for you. 

3. Insurance: It is an important component of financial planning that every person needs to consider. By taking insurance cover on life, health, vehicle, property and business transactions etc. you are addressing the risk involved in each of them. Determining the need and the extent of coverage requires planning and can go a long way in insulating you, your business and your loved ones from any untoward development. Besides, return-oriented insurance products can also be an attractive investment option. In the case of life insurance, ULIP, endowment and annuity are such product categories. You can use the Life Insurance Calculator, which in three easy steps will help you determine the amount you need to save for the complete protection for your family.  


4. Education planning: It is an important part of financial planning for any individual who is raising children. Ensuring quality education is the responsibility of every guardian/parent, and only proper planning can make that possible. Education is becoming more and more expensive, and no one wants their child to miss out on an excellent educational opportunity due to financial constraints. In case there is a financial deficit, it can be tackled by laying aside a sufficient amount of money regularly and years in advance, preferably as soon as the child is born. By investing it in a way that it matures in time for the child’s graduation and higher studies, educational plans can be fulfilled. 
Use the Child Education Cost Calculator where all you have to enter are the child's current age, his higher education age, cost estimation details and the amount already saved. This will help to determine the extra amount which needs to be saved in order to fund your child's higher education.

Related: What does it cost to educate your child in India?  

5. Tax planning: As proclaimed by Benjamin Franklin, tax is one of only two certainties in life, alongside death. Therefore the importance of tax compliance goes without saying. Investment decisions are often made keeping the tax implications in mind. In India, selected investments of up to Rs. 1.5 lakhs can bring in tax relief. Similarly, income sources, asset sales and purchases are considered from the point of view of tax-friendliness. For example, profit on the sale of a building may be taxable, but investing the sale proceeds in certain specific assets may result in tax savings.

Related: ​Tax planning tips for every age group​​​

6. Retirement Planning starts with some basic questions like your retirement age and how much corpus you should have. Your current savings are defined by your future goals, so the bigger your retirement corpus or, the earlier you plan to retire, the more you must save. Decisions regarding the type of investments that have to be made and how to ensure that you manage to beat inflation have to be considered. The bottom line remains that financially securing your post-retirement life is possible only through thorough planning. Use this Retirement Planning Calculator to determine the amount you need to save for a comfortable and secured retired life. 

7. Estate planning: It involves sorting out the documentation and legalities of your wealth and estate. There should be a living will for the estate and properties, which should be backed by legal documents. A properly managed estate makes life easier during old age, since all ambiguity around finances, health care, inheritance are clearly addressed. Estate planning attorneys help out their clients with estate planning, which addresses all conceivable circumstances. Having said that, creating your Will becomes very important in the process. This iWill is a simple and easy way for you to make your Will, ensuring that your future financial matters are in order. 

Related: Five must-have investment instruments for retirement planning

The step towards successful financial planning begins with identifying the objectives and setting realistic goals. It is on the foundation of these fundamental set of goals and objectives that the pillars of financial planning are built. Have a look at the Financial planning pyramid to gain a comprehensive understanding of the various financial planning pillars.

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