Clarity On Building Your Financial Plan

Setting financial goals, fixing timelines and choosing investments need to be well thought out, with as much time spent on them as required; investing is as important as earning money.

If you are a do-it-yourself (DIY) investor and want to know how to go about your financial planning, the basics are just a Google search away. To jot down the basics:

Set financial goals — put financial numbers to your emotional goals.

Plan for retirement — estimate future expenses adjusted for inflation.

Make a budget — for your expenses and savings.

Channelise savings into appropriate investments.

Have adequate term insurance cover, and so on.

Today, we will discuss one requirement to help prepare a financial plan, even if you are taking inputs from a professional adviser. And that is, your own clarity. Let us see what it means and why it is required.

Your goals

Financial planning requires converting your emotional life goals to measurable terms.

Here you need to have clarity on what you want to do in life, and the order of priority. It could be conventional goals like purchase of a home, a car, budgeting for a vacation, children’s education, marriage, and the like.

It could also be unconventional goals such as early retirement or pursuing your passion.

The clarity you require is in terms of time and money; there is only so much you can do in life. You have to put timelines and priorities to these. That will lead to more focussed savings and investments for these goals. Once you decide for yourself, you have to put down the estimate in terms of money.

The estimate may not be accurate, but is better than not having an estimate. Once your goals are set, it can change. Nothing is fixed in life. However, any change, either in a goal or in priorities or timeline, should be a well thought-out one. There is a difference between being fickle-minded and taking a considered decision.

Your investments

This is where there is a big need to have clarity.

When you are deciding on your investments, especially if you are DIY, you would look at past returns from that avenue. You have to look at not only the past performance but past volatility as well.

In particular, what is referred to as a drawdown — the maximum loss or adverse market movement, historically. Unless you have clarity that you can bear that much of volatility, that mode investment may not be suitable for you. You are investing for a goal, with a defined, or at least estimated, time horizon. Unless there is a compelling reason, you need not change your portfolio every now and then.

There is a distinction between trading and investment. Trading is for achieving a particular target price over a short horizon. An investment is for the long horizon, which is not expected to be shuffled due to market fluctuations.

Your investments should be for an objective, which is your financial goal. It should not be influenced by the ‘flavour of the times.’ There are times when cryptocurrencies are a rage. There are times when the equity market is rallying or gold is gaining ground. Something that is moving up every day and is flashed in front of you, and looks attractive.

You have to avoid these temptations and be clear about what you are investing for and what is appropriate for you.

Existing Finances

You may do-it-yourself or you may work with a financial planner. Whatever the case, you have to do your house-keeping. Usually people have staff scattered here and there.

You may have something invested in a few equity stocks because someone had recommended those. There are some mutual fund schemes with you, for a similar reason.

Money is allocated every year to EPF, PPF, etc. There are multiple bank and demat accounts. You have to get everything together, as an inventory. This has to fit in with your overall financial plan.


You are working hard in your job or business or profession, to earn money. This is to save and invest, for what you want to do in life. When you are giving so much time and effort to earning money, you owe it to yourself to do a thorough job when you are investing those earnings.

You need clarity on what you want to do (financial goals), when you want to do (timelines) and how you want to do it (aggressive or conservative investments, and the like).


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