Understanding and defining these three elements for yourself will help you create a strong foundation on which you can build a successful financial plan.

After working with several clients and having guided them in making their financial plans, I have identified three key elements that you need to be aware of before making your financial plan. For all those clients who weren’t aware of even one of them, making their financial plan required a lot of re-work and at times resulted in failures during implementation.

The 3 elements that you should understand before starting your financial planning are –

1) Purpose – what is/ are the objectives of your financial plan?

1. Growth of capital

2. Regular income

3. Protection of assets

4. Protection of savings

5. Creating a legacy

   
   

Funding your retirement/ kids’ education, etc.

2) Means – what are you existing resources that you can use in your plan?

1. Monthly savings

2. Idle assets – property/ gold

3. Windfall gains

4. Year-end bonuses

5. Rent from house/shop, etc.

   
   

3) Actions – what are your ready to do, in order to make this plan work?

1. Save & invest every month/ quarter/ year

2. Understand different investment instruments

3. Move your residence to reduce rent

4. Change your spending habits

5. Create legal documents like Will

6. Take more insurance, etc.

   
   

While making your financial plan you will be required to make many decisions & assumptions related to several areas of your life. Knowing above three elements in advance makes that decision making process easy, fast and more effective. It helps you define your boundaries and hence create a clear picture of what your financial plan will be able to achieve under given circumstances.

In essence, understanding and defining these three elements for yourself will help you create a strong foundation on which you can build a successful financial plan for yourself.

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