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Plan Your Finances | Step-by-Step Guide

Plan Your Finances | Step-by-Step Guide

Have you heard the famous quote by P.T. Barnum “money is a terrible master but an excellent servant”? This brilliantly sums up that money should be well controlled by you if you want to secure a bright financial future. And what else is a better way, than to diligently plan your finances?

But we get it, financial planning might not be crystal clear at the start. 

So, first, let’s take a look at what financial planning is. 

Financial planning is like making a roadmap for your life. It’s a way to keep track of your money, so you can reach your goals by managing your income, spending, and investments.

What is a financial plan? 

A financial plan is like a paper that shows what money you have now and what you want to do with it in the near and far future. It also tells you how to reach those money goals.

Think of a financial plan like a tool that helps you become the master of your money, instead of its servant. 

But this understanding might open another box of questions!
Is managing your taxes the most important thing? Or does smart investment trump everything else on your road to a successful financial future? To clear the air, we have brought an all-in-one guide on how to plan your finances.

Let’s get to it! 


  1. Understand the Importance of Financial Planning 
  2. Create a Budget
  3. Start to Invest
  4. Create a Financial Safety Net
  5. Reduce Your Debt
  6. Plan Your Taxes
  7. Plan For Retirement
  8. Review Your Finances 

Why is Planning Your Finances Important? 

There is a list of reasons why financial planning is important for everyone, regardless of which stage of life they’re in. But for brevity’s sake, check out these top 3 reasons:

1. To deal with inflation

Over time, the cost of things goes up because of inflation. Your money needs to grow faster than that or it loses value. Financial planning helps you deal with this and covers expenses like education and medical costs, which go up even faster.

2. To maintain a lifestyle 

As you earn more, you might want a better lifestyle with more spending. Financial planning helps you save and invest so you can keep that lifestyle and be financially independent.

3. To secure a comfortable future 

Planning your finances is making sure you have enough money for your entire life. Just saving money isn’t enough; you need a plan to make sure you’re financially okay for all your years.

These are the top three reasons why financial planning is important. And if these convince you for the importance of having a plan, read ahead for your 7-step guide on how to plan your finances. 

7-Step Guide to Manage Your Finances 

The following are the 7 steps you need to follow to manage your finances: 

1. Create a Budget 

The ultimate first step in any kind of financial planning is budgeting. And budgeting is nothing but putting your needs over wants and setting aside savings for emergencies and future goals. 

The most important thing while budgeting is to accurately track your income and expenses to create a realistic and sustainable financial plan.

Let’s understand with an example. 

With a 50,000 rupee salary, allocate around 60-70% (30,000-35,000 rupees) for essential expenses like rent, utilities, groceries, and transportation. 

The remaining 30-40% (15,000-20,000 rupees) should be saved for financial security and used for non-essential spending like entertainment and dining out.

2. Start to Invest 

The second step is to start investing. When starting, remember that you need to set clear financial goals, assess your risk tolerance, and diversify your investments. 

The catch is to start with a manageable amount – the amount you will not mind losing. But that’s not the only rider you have to be mindful of. You need to keep in mind any fees that might be attached. 

So, which investment options are best for you?

For a balanced start to investing, consider a mix of stock market investments, such as ETFs, and a retirement account like a 401(k) or IRA to benefit from tax advantages and long-term growth potential, depending on your financial goals and risk tolerance. Above all, remember that diversification and a long-term perspective are key to building a successful investment portfolio.

3. Create a Financial Safety Net 

When learning to plan finances and starting to invest, don’t forget to establish an emergency fund as a financial safety net. This fund is crucial to help cover unexpected expenses and to provide peace of mind.

So, how do you create a fund for emergencies? 

Well, creating an emergency fund involves opening a basic savings or money market account, potentially with a small annual yield but no annual fees. The fund should cover three to six months of expenses, depending on your circumstances, and you can start small with automated transfers. 

Use the fund strictly for genuine emergencies, and if you dip into it, remember to replenish it because unexpected expenses may happen again.

4. Reduce Your Debt 

The most important thing to keep in mind while reducing your debt is to prioritise high-interest debt first. Focus on paying off debts with the highest interest rates, as this will save you the most money in the long run and free up more funds for your financial goals.

But what will “reducing your debt” lead to? Will it add positively to your financial planning?

Yes, reducing your debt will positively impact your financial planning by saving you money on interest, improving your credit score, and providing more financial flexibility for your future goals and expenses. So, do not think twice before unburdening yourself from debt. 

5. Plan Your Taxes

The fifth step in your 7-step guide is: planning your taxes. This can help you plan your finances by minimizing your tax liability and maximising your savings. 

But, realistically, what does planning your taxes look like? 

Well, it looks like taking advantage of tax-advantaged accounts, deductions, and credits, which can free up more money for your financial goals and reduce the impact of taxes on your overall financial health.

6. Plan for Retirement 

As much as we avoid talking about it, retirement is a stage of life everyone has to reach one day. And so, considering it in the financial planning journey is important. 

But, how to start with retirement planning? 

To plan for retirement, start by defining your retirement goals, estimating how much you’ll need, and creating a savings and investment strategy to reach that target. 

Consistently contribute to retirement accounts, take advantage of tax benefits, and diversify your investments to manage risk. Regularly review and adjust your plan as life circumstances change, and consider seeking guidance from financial professionals to ensure a secure and comfortable retirement.

7. Review Your Finances 

Last, but probably the most important step is to regularly review your finances. Why, you ask? Simply because regularly reviewing your finances is inevitable for effective financial management because it allows you to track your progress toward financial goals, adapt to changing circumstances, and identify areas for improvement. 

How to review your finances without missing? 

If you want to review your finances without fail, you need to start by setting a specific time each month to track income, expenses, and progress toward your financial goals. You can even use financial software or apps to simplify the process and consider consulting with a financial advisor periodically for expert guidance.

By now, you have the ultimate scroll of the 7 steps on how to plan your finances. Whether you’re in your 20s heading out in the world, or you’re in your 50s recentering your goals, this guide will lead you to a financial future that feels safe and secure. 

For more actionable guides, keep checking out this space! 

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