Learning Center


Mr. Raj Kumar
B.Sc. (Medical) and CFPCM.


As per Webster English Dictionary, financial means relating to money. Planning is an act or process of making a plan to achieve or do something. Thus Financial Planning is the science of money management. It is a process where you have a road map of your financial life which will help you to meet your financial goals. A renowned management guru said "Entrepreneurship is not an art or science but practice."

Similarly financial planning too is a practice. Financial planning , the process needs certain ingredients to be involved to achieve the result like you , your aspirations / goals, your current financial status, current income, expenses and the most important - your attitude towards money management. In this context, I would like to highlight that due to poor financial planning.

  • Every year millions of people across world declare bankruptcy.
  • Many lose their hard earned money in fraudulent schemes, ponzi schemes.
  • Very large population compromises with their life situations/living standards .

Every individual on the earth has many financial aspirations / goals like buying a new car, buying a bigger house , good education of the child, comfortable retired life , creating wealth , leaving wealth for children after death .But the question to be addressed is, how many or what percentage of population across the world ,in developed countries, poor countries is able to full fill its dreams as per the plan or it just remains a wish and never becomes a reality? Always majority of population ,was struggling , is struggling and will continue in future too in terms of financial security, if they do not manage their finances. And today not individuals but many countries are facing financial crisis. Then what is the solution?

A famous quote

" Life is full of uncertainties. Future investment earnings and interest and inflation rates are not known to anybody. However I can guarantee you one thing .. those who put an investment plan in place will have a lot more money when they come to retire than those who never get around it". Noel Whittaker.
As tomorrow is uncertain , we have to manage our today so that our tomorrow is good. Thus need of the hour is to undergo comprehensive financial planning.


Few advantages of financial planning are as follows -

  • A financial plan can enhance the quality of your life and increase your satisfaction by reducing uncertainty about future needs and resources.
  • Increased effectiveness in obtaining, using and protecting your financial resources throughout your life time.
  • Increased control of your financial affairs by avoiding excessive debt, bankruptcy and dependence on others for financial security.
  • Improved personal relationship resulting from well planned and effective financial decisions.
  • A sense of freedom form financial worries obtained by looking to the future ,anticipating expenses and achieving your personal financial goals.

The first and the most important step is to first assess where you stand today , what is current financial position and where it is you want to reach. To do this first you have to measure your financial heatlh. Few simple personal financial rules that you can start with to measure your financial health.

  • Debt to Income Ratio= Total monthly outgoings on liabilities / total monthly income from fixed sources. Ideally the ratio should be around 30 %. This means you should not be spending more than 30 % of your income on paying loans/interest on loans.
  • Saving to Income Ratio= Total monthly saving / Total monthly income. Ideally you should be saving 20-30 % of your monthly income and invest.
  • Contingency Ratio= 6 to 12 months of living expenses. You should set aside 6 to 12 months of living expenses as a contingency fund and use only in emergencies.

These ratios will guide you about how is your current financial heatlh and what should be the action plan . The most important way to manage is your money is to live within your means or preferably below your means and keep an eye on your money flow. The use of a personal budget is the simplest and quickest way of analysing whether you are a spender or saver.

Please remember – it is better to first save as per your plan and then spend out of what is left , rather than to first spend and then invest out of what is left. The second step is where do you want to reach, what are your financial goals which you want to achieve, like

  • Purchase of home.
  • Child's Education.
  • Child's Marriage.
  • Retirement Plan.
  • Charity / Philanthropy.

Also your goals should be measurable, realistic and time bound. You should even classify your goals based on priority and proximity. And also quantify your goals like what is the current cost of child's marriage , say 10 lacs , now what will be future cost after 10 years. If inflation is say around 7 % then the target will be 19.67 lacs, thus you have to work for this amount with in 10 years. Like wise we have to quantify objective of all goals .

As stated above this is a brief overview about financial planning , it involves other parameters also like Insurance Planning, Tax Planning , Estate Planning etc. As per FPSB – Financial Planning Standard Board Ltd USA. The Financial Planning process is a six step procedure.


Following steps need to followed while preparing financial plan.

  1. Establishing and defining the client planner relationship.
  2. Gathering client data , including goals
  3. Analyzing and evaluating your financial status.
  4. Developing and presenting financial planning recommendations and / or alternatives.
  5. Implementing the financial planning recommendations.
  6. Monitoring the financial planning recommendations.

Best practices to be followed when approaching financial planning -

  1. Set measurable goals
  2. Understand the effect your financial decisions have on other financial issues.
  3. Re-evaluate your financial plan periodically.
  4. Start now - do not assume financial planning is for when you get older.
  5. Look at the big picture – Financial planning is more than tax planning, retirement planning. investing etc.
  6. Do not expect unrealistic returns on investments.
  7. Do not wait for a money crisis to begin financial planning.

At the end, I would like to address the issue of where to seek professional advice from. One area of bigger concern is about financial literacy among people , knowledge about financial products, their applications and various other intricacies. Sorry to mention, but financial literacy among masses currently is very bad. Due to lack of knowledge people get trapped in various financial instruments and lose their money. Look forward for right financial advice from the right financial planner , who is client oriented and not associated with any organisation .

Across the world people are paying fees to financial planners, but in India this concept yet to gain ground. Also investors should not look at free financial advice ,as free food is only available in a mouse trap!

Finally, I would like to conclude with the words of Stephen Covey -

"Efficiency is doing things right;effectiveness is doing right things."


Siddhant Agrawal.
CFPCM and MBA in Marketing.


Financial literacy includes the ability of the individual to understand financial choices, plan for the future, spend /manage wisely and take informed decisions. As with any other decision, a financial decision arises from some need. So the study of nature and characteristics of various financial needs provides the start to financial education. The understanding of financial needs leads to an understanding that there exists reasoning and explanations, which is both necessary to understand the importance of financial literacy.

In considering the entire process of financial education, a relation can be made between the financial health and medical health. Regarding medical health, it is not possible to educate everything about how to take care of all their medical needs. Rather, the general education regarding health is mostly in the lines of educating about activities and behavior, such as good diet and exercise, which generally promote good health and well-being. Further, people seek expert medical help when they observe symptoms of problems in themselves.

Similarly, the intent of financial education should concentrate on financial activities and behavior that promote general financial well-being. Along the same lines, the general education should also provide consumers with the ability to detect symptoms of poor financial health so that they can seek advice of a financial expert.

Steps for Financial Literacy

Step 1

Financial literacy must begin by explaining the need and importance of good financial decisions. Individuals make a wide array of financial decisions through their lifetime. Each of these decisions is prompted by the emergence of a need. To help consumers make informed decisions, education should begin by a very clear explanation of the need and why the decision to correctly satisfy the need is so important. This explanation should also be accompanied by the costs of an ill-informed decision.

For example saving for retirement. Here, the consideration begins by observing that the primary objective in this decision is to save so that the standard of living established by the individual prior to retirement can be maintained through the retirement years. The consumer needs to understand that the implications of not having sufficient funds during retirement when the funds are most needed. This can result in reductions in living standards which is more painful at an advanced age.

The accuracy of the explanation is very important to separate other decisions that are often included in this decision.

For example, consumers budgeting for retirement savings may include the contributions made in funding children's college education. Consumers need to understand that this is a separate investment and savings decision and should be approached separately. Otherwise, the simultaneous solution of attempting to meet two different financial objectives will typically lead to suboptimal decisions and transactions in unsuitable products.

As a second example, consider the common need for life insurance. In this case, the primary need is to allow the insured person the ability to protect her/his dependents and loved ones from a sudden loss of income due to a premature and unexpected death. Thus, life insurance is said to cover "pure risk". This clarity is a necessary piece of information since life insurance products are commonly bundled with instruments that satisfy other financial needs such as investment, tax deferral, small business succession, or as a source of credit.

Without the definitional clarity, the decision becomes complex since the various bundled instruments may indeed be the most suitable and optimal instrument for some other consumers.In a sense, educating consumers about the basic need in this case may just prove to provide a preventive rather than a curative set of knowledge.

Thus, it can be said that the first and important step in financial literacy is the clarification, in all details, of the financial objectives for the decision being made.


Step 2

The next step is to determine the priorities of the decisions. This generally should lead to the more efficient allocation of the limited resources and eventually the successful satisfaction of lifetime financial needs


Step 3

Last and in a sense, the most critical step is the education process. This critical step is educating individuals about themselves, especially their perspective on risk. Central to this step is to educate consumers about the very important fact that financial decisions are the outcomes of reasoned processes; their decisions are not based on emotions. It is often this misunderstanding that causes difficulties and pain to many consumers. Common examples of emotions that become entangled and may strongly influence financial decisions are those of greed and fear. Decisions based on these emotions will in most cases have unsuitable outcomes

Thus, at the heart of financial education lies the need for consumers to understand that, reason and rationality must be the only way in which financial decisions should be made. In fact, they should understand that such a disciplined approach to financial decisions generally lead to achieving the desired objectives. Thus, reasoned financial decisions lead to good financial health much like what good diet and exercise does for physical health.

It is also important to educate consumers to determine when to make a financial decision on their own, and to understand symptomatic conditions of deeper rooted problems that may require financial expertise from an independent, qualified adviser.



CFPCM is necessary for advisors to ensure the investors are offered advice in a "HOLISTIC manner". A CFPCM will ensure that investors achieve their goals under all circumstances. The Financial Planning exercise will help to understand the risk appetite of the investors and plan their investments keeping in view their unique risk profile.

The CFPCM will play a critical role in the contingency planning to take care of all the insurance needs viz., Life, Health and Physical Assets, in an optimal way. Another "U.S.P" of a CFPCM will be to assist the investor in the seamless transfer of his estate to his next generation. One more important service rendered by a CFPCM is to help the investor to minimize the tax incidence on his income, thereby maximizing the post tax returns on his investments.

All these services can be hired through separate individuals and institutions. The problem of engaging different people is with the co-ordination and ensuring the goals of the investors are achieved in a streamlined fashion.

There are some advisors who manipulate the investors to thrust an unnecessary products to enrich themselves. Such practices are going to disappear with the increasing number of CFPCMs in the industry which is highly regulated.

We have one million insurance advisors, one lakh IFAs and only 1500 CFPCMs in this vast country. Hence let us add unique respect to our name and assist the investors with value added services.

To summarize, the CFPCM will act like a family physician who addresses all the financial concerns of the family in the long-term and aid in the wealth creation along with protection from all contingencies.

Financial planning is a tool to develop a comprehensive plan to help investors to achieve their long term and short term financial goals. It is scientifically proved that portfolio performance is dependent largely on risk profiling and asset allocation rather than timing the markets and product choice. Without financial planning risk profiling and asset allocation can't happen in a formal and disciplined manner.

Customization of advice to investors through understanding the risk appetite will leave a distinct and unique mark of the advisor and his expertise. Evolution of an advisor from "product seller" to an expert addressing the needs and aspirations of the investors is possible through financial planning.

When we are life insurance advisors we sell only life insurance products thereby wealth creation gets neglected and the investor portfolio skewed towards contingency products. Similarly when we sell mutual fund products we may focus more on various asset classes thereby ignoring contingency planning.

Financial Planning will lead to a radical paradigm shift away from AMC or Insurer to investor which will lead to profound long-term financial well being of the investor and his family. With financial planning an advisor can create an MDRT investors club which is not possible otherwise. The AUM volatility witnessed in normal mutual fund selling can be minimized through financial planning, as every investment is latched on to a goal of the investor and his family.