How to Do Personal Financial Planning and Analysis in 10 Easy Steps [2024 Edition]

Today we’re going to talk about something very important – Personal Financial Planning.

When we read the term ‘Financial Planning’ or ‘Personal Financial Analysis’, we believe that it’s jargon. Some people think it’s a big, confusing word for rich people who have a surplus of money, and the trunks are overflowing with currency notes.

But guess what? It’s for everyone! the reality is that Personal Financial Planning and analysis is required by everybody, and not only by the one born with a silver spoon.

Whether you are saving up to buy a cool toy or planning a family trip, you are already a financial planner in your own way. In this article, I will discuss and show you how to make a smart plan for your money, not just any plan. So, let’s get started and learn how to manage our money wisely!

Understanding Personal Financial Planning

Personal Financial Planning is all about making plans for our money so that we can do the things we want in life. It helps us to look after our money, make it grow, and keep it safe for the future.

Money management is a skill we all need to learn, just like reading and writing. It is not only for grown-ups; even kids can start learning about financial literacy. By planning our finances, we can be sure that we have enough money for the things we need and the things we dream of, like a new bicycle, a family holiday, or even our education.

When we talk about Personal Financial Planning, we are talking about very important ideas like;

  • saving money,
  • understanding how much we owe others (like in loans or debts),
  • protecting ourselves with things like insurance, and
  • even planning for when we are old (that’s called retirement planning).

There are also other big words like estate planning and taxes, but do not worry – we can understand all of these step by step.

How to Do Personal Financial Planning and Analysis

There are multiple steps in personal financial planning and analysis. We will discuss ten easy steps, which you can follow to reach your financial goals.

Step 1: Assess Your Income

— How Much Do You Earn?

The first step in Personal Financial Planning is to figure out how much money you get.

Think about all the ways money comes to your family. Maybe your mom and dad have jobs that pay them every month. There could be other ways your family gets money, like from a house they rent out to someone else, or from a bank that pays them interest.

Let us imagine a family just like yours. There is Rakesh and his wife Maithili who both work and earn Rs. 50,000 each month. They also get Rs. 10,000 per month as rent from renting out a house they own.

If you add up all the money they get from their jobs and the rent for a whole year, it would be a big number i.e. they earn a total of Rs. 13.20 lacs in a year (50,000 X 12 + 50,000 X 12 + 10,000 X 12). This is their annual income – the total money they earn in one year.

Knowing how much money you have coming in is very important. It helps you to plan how much you can spend and save. It is like knowing how much water you have before you fill up lots of buckets!

Step 2: Track Your Expenses

Know Your Expenses
Know Your Expenses

— Do You Know Your Expenses?

Once you know how much money you have, the next thing is to find out where it all goes. This means looking at what you spend your money on. You might spend money on food, going to school, or even on fun things like movies or toys. To plan your money well, you need to know all these little details.

The simplest way to calculate expenses is to calculate the difference between the amount that comes as salary at the start of the month and the amount that is left on the last day of the month.

The expenses are further to be explained by categorizing them in different heads like, EMI, Rent, Medical, Dining out, Grocery, Utility bills, Electricity bill, Snacks, drinks, travel, insurance, maintenance, beauty, fitness, petrol, clothes, electronic appliances, savings, etc. The list can be huge, but you have to identify the major expenses and note how much you are spending in which category.

There are lots of ways to keep track of what you spend. Some families write down everything they buy in a notebook. These days, there are also mobile apps that can help; i.e.Money view, ET Money, and Walnut Money Manager. When your family buys something and gets a message on their phone, these apps read the message and write down what was bought. This way, you can easily see what you spend the most on – maybe it is food, or school books, or even going out to eat.

For Rakesh’s family, they found out they spent Rs. 10.30 lacs in one year. Knowing this helps them make better plans for their money.

Step 3: Calculate surplus

— Have You Ever Calculated What’s Left After Your Expenditure?

The difference between Income & expenses.

You will find that some of the expenses are annual like Insurance Premiums and some are recurring monthly expenses. Similarly, monthly salary is there, but you may get a yearly bonus or Leave Travel Allowance as a lump sum amount. Hence, you have to take a total of annual income and expenses and calculate the surplus.

Rakesh gets a yearly bonus of Rs. 80,000. As it was missed in the first point, the same will be added to the income part here. Now total income of the family becomes Rs. 14 lacs a year. Rakesh pays an insurance premium of Rs. 20,000 and he saves Rs. 1.5 lacs in Public Provident Fund (PPF) annually. Thus, the total spending including the one mentioned in Step 1 is Rs. 12 lacs (10,30,000 + 20,000 + 1,50,000).

Thus, the total surplus becomes Rs. 2 lac; the difference between Income (Rs. 14 lacs) and spending (Rs. 12 lacs).

Step 4: Calculate Your Savings

— Do You Save Anything?

After you know how much money you get and how much you spend, you can find out how much you can keep. This is called savings. It is like having a jar where you put money in every time you do not spend it all. At the end of the month or year, you can see how full the jar is!


If the surplus is positive that means, you have saved something.

Saving money is great because it means you have something for later, maybe for something big or for an emergency. It is a bit like saving candy from a party to enjoy later!

And we can now go ahead in the process of financial planning. Otherwise, you need to identify which expenses are mandatory and which can be reduced. Once this figure (Income minus expenses) reaches a positive value, you can move to Step 5.

In step 3 of personal financial planning and analysis, we found that Rakesh and his family can save Rs. 2 lac in a year.

Step 5: Set Financial Goals

Set Your Financial Goals
Set Your Financial Goals

— What Are Your Goals?

Now, let us talk about goals. Goals are the big things you want to do with your money. Everyone has different dreams, like buying a new toy or going to college. We call these dreams financial goals because they have to do with money.

Goals can be for soon, a little later, or for a long time from now.

  • Short-term goals can be of 1 to 3 years.
  • Medium-term goals will be for 3 to 5 years.
  • Long-term goals are for more than 5 years.

If you want something soon, like in a year or two, it is a short-term goal. Let us say Rakesh and his family want to go on a fun trip in two years for which the family would need a sum of Rs. 2 Lacs. That is their short-term goal.

A medium-term goal is something that is not too soon but not too far away, maybe in three to five years. Rakesh’s family also wants to buy a new car worth Rs. 5 lacs in five years. That is their medium-term goal.

Long-term goals are for things way in the future, like more than five years away. For Rakesh, it is to make sure they have enough money for his son’s college, which is ten years away. Assuming that the present cost of higher education is Rs. 10 lacs and his son is eight years old.

Every individual can have different goals. You have to identify your goals. Some other examples of goals are – making an emergency fund, building a retirement corpus, and starting a business.

It is important to write down your goals so you can remember them and plan how to make them happen. Think of it as making a wish list for your life!

Step 6: Estimate Future Costs

— What’s The Amount Which You Would Need For Your Goals?

When we think about our goals, it is not just enough to know what we want. We also need to understand how much money we will need to achieve those goals. This is where we need to think about the impact of inflation on our plans.

Inflation means that things get more expensive over time. For example, if a toy costs Rs. 100 today, it might cost Rs. 120 in a few years because of inflation. To make sure we have enough money for our goals in the future, we need to consider this extra cost.

For Rakesh and his family, they had to think about how much their trip, car, and their son’s college will cost in the future. They found out that they would need more money than they initially thought because of inflation.

The goal of the foreign trip is within two years. So, there won’t be enough impact of inflation. For the medium-term goal of buying a car in 5 years, we assume inflation of 5%. Using a compound interest formula, we can say that the car which is costing Rs. 5 lacs today will cost Rs. 6.4 lacs after five years.

Similarly, to save for his son’s higher education, Rakesh has to do the same calculation. If the present cost of education is Rupees 10 lacs and the child is eight years old. Using the same compound interest formula, we can find that the amount required after ten years will be around Rs. 16 -17 lacs and not Rs. 10 lacs.

Understanding how much our goals will cost in the future helps us plan better and make sure we save enough money for them. This was an important step in personal financial analysis.

Step 7: Align Savings with Goals

— Can You Match Your Savings with Your Goals?

Now that we know how much our goals will cost in the future, we need to check if our current savings match up with these goals. It’s like putting together puzzle pieces to see if they fit.

For example, if Rakesh and his family saved some money for their trip, they would check if the amount they saved is enough for the trip in two years. If it is not enough, they would need to save more. This way, they make sure they have the right amount of money for their goals when the time comes.

Here, Rakesh can map his bank fixed deposits or investments in other saving instruments which can mature in the next two years for his foreign tour.

It’s like making sure you have all the right ingredients before you start cooking a big meal. You wouldn’t want to start making a cake and then realize you’re missing some important things, right?

By aligning our savings with our goals, we can make sure we are on the right track to achieve what we dream of.

i.e. If you have taken a child plan from a life insurance company, map the returns from that plan to ‘child’s education goal’. Similarly, you can map Public Provident Fund savings to your retirement expense goal. Use the compound interest formula to arrive at the value that it will become when you retire.

Step 8: Determine Your Investment Needs

— What’s Your Target Amount?

Check the difference between ‘Amount required for goal’ and ‘Savings’. The remaining amount is your target to be achieved in a fixed number of years.

Higher Education Long Term Goal
Higher Education Long Term Goal

For buying a car, if Rakesh has some medium-term savings which will give him a return of Rs. 1 lac after five years, he’ll further have to save Rs. 5.4 lacs. Similarly, long-term investments can be mapped with the goal of higher education, and the remaining amount needs to be saved. But, Rakesh should always keep in mind that the amount required is Rs. 16 lacs and not Rs. 10 lacs.

After aligning our savings with our goals, we need to think about how to make our money grow. This is where we talk about investing our savings. Investing means using our money to buy things that can grow in value over time.

There are different ways to invest money. Some people like to put their money in a bank, where it can earn interest. Others might buy shares of a company or invest in mutual funds. It’s like planting seeds in a garden and watching them grow into big, strong trees over time.

For Rakesh, he needs to figure out the best way to invest his money for each of his goals. He might choose one way to invest for his short-term goal and another way for his long-term goal.

By making smart investment choices, we can help our money grow and reach our goals faster.

Step 9: Begin Investing

— Start Your Investment

Now that we understand the importance of investing, it’s time to start putting our plan into action. Depending on our goals and how soon we want to achieve them, we can choose different ways to invest our money.

If we want to play it safe, we can consider debt instruments like government bonds, public provident funds, bank fixed deposits, and corporate fixed deposits. These are like planting seeds in a secure garden where they grow steadily.

For those who are open to taking a bit more risk for potentially higher rewards, investing in stocks or mutual funds might be a good choice. It’s like planting seeds in a garden with a bit more adventure, where the trees might grow taller and faster.

For Equity Shares, you need to open a Demat Account. For other instruments like a fixed deposit or mutual funds, you can visit your bank. Mutual funds are also available online through the mutual fund company websites or the intermediary websites. If you want to buy a mutual fund from ICICI Prudential, you can visit If you want to buy a mutual fund of HDFC, visit Always check the fund performance and peer review comparison at or

Rakesh can now decide where to invest his money based on his goals and how much risk he is comfortable with. We had arrived at a saving of Rs. 2 lacs in Step 4. For his medium-term goal, Rakesh can save Rs. 7,000 per month in a balanced mutual fund. Assuming a 10% annual return, Rakesh would be able to save Rs. 5.4 lacs in 5 years, which is required for buying a car. (Total amount invested is Rs. 7000 X 60 months = Rs. 4,20,000). Here, we have used the same Compound interest calculator.

Step 10: Regularly Review Your Plan

Annually Financial Review
Annually Financial Review

— Review Plan Annually

Once we have started investing, it’s important to keep an eye on how our investments are doing. Every year, we should review our plan to see if we are on the right track. This is like checking on our plants in the garden to make sure they are growing well.

  • We need to look at how much our investments have grown and if they are helping us reach our goals. If we find that some investments are not doing as well as we hoped, we might consider making changes. It’s like watering the plants that need a little extra care.
  • We also need to think about any new goals we might have and include them in our financial plan. Life is always changing, and our plans need to change with it. Maybe we have a new dream, like learning to play a musical instrument, and we want to save money for it.
  • We should check if the investments have the potential to reach your desired goals and, is there any new better investment option available. If yes, you can shift some of your investments to the better choice.

By reviewing our plan every year, we can make sure our money is working hard for us and helping us achieve all the things we want in life.

Also, read my previous article about Why You Must Do Annual Financial Review & How to Do it, The Right Way!


In conclusion, personal financial planning is not just for adults with lots of money. It’s for everyone, including kids! By learning how to manage your money wisely, set goals, and make smart investment choices, you can make your dreams a reality.

So, start planning your finances today! With a well-thought-out plan and regular reviews, you can make sure your money is working hard for you and helping you achieve your dreams.

Do you think you can do your personal financial planning and analysis using the above guide? Send us your queries wherever you get stuck and together we’ll find a way out.

(Disclaimer: The points mentioned in the article are based on the author’s experience. Every individual has different needs and resources. For individual financial planning and analysis based on your profile, you should consult a Certified Financial Planner.)

Photo of author
Sohil is a nature lover, born and brought up in the Himalayan town 'Almora.' He has a varied interest in financial planning, yoga, and nature.
The article was originally written by the author and it is being updated and maintained by the Editorial Team.

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