How to Do Personal Financial Planning and Analysis in 2019

When we read the term ‘Financial Planning’ or ‘Personal Financial Analysis’, we believe that it’s jargon. We believe that ‘Financial planning’ is a potion used by the upper-class population of the society who have a surplus of money and the trunks are overflowing with currency notes.

But, the reality is that Personal Financial Planning and analysis is required by everybody, and not only by the one born with a silver spoon.

You do financial planning when you want to buy a water purifier or a two-wheeler or a car or plan to marry your child or want to go for a trip or to give a gift to somebody. Almost everybody does it in his/ her way. This article will tell you how not to do personal financial analysis ‘own way’, rather do it in a ‘strategic way.’

How to Do Personal Financial Planning and Analysis

There are multiple steps in personal financial planning and analysis. In this article, we will describe ten easy steps, which you can follow to reach your financial goals.

Step 1 – How Much Do You Earn?

First of all, calculate your earnings from salary, interest income, rent, shares or mutual fund dividends, etc. and arrive at an annual value. If there are multiple earning members of the family, add their income too.

We’ll start with an example. There is a family of five people. Rakesh and his wife Maithili are the earning members of the family; while his father, mother, and son are not the earning members of the family. Both Rakesh and his wife earn Rs. 50,000 each per month. For financial planning, salaries of Rakesh and Maithili are added. Also, they own a house from which they earn Rs. 10,000 per month as rent. Therefore, they earn a total of Rs. 13.20 lacs in a year (50,000 X 12 + 50,000 X 12 + 10,000 X 12).

Step 2 – Do You Know Your Expenses?

Know Your Expenses
Know Your Expenses

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 which is left on the last day of the month.

The expenses are further to be explained by categorizing 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 many mobile applications available in the mobile ‘play store’ like Money view, ET Money and Walnut Money Manager. These apps help you to identify the areas of your expenses by automatically reading your spending SMS and categorizing them. You can edit the auto entries and can also add your cash spending.

While doing personal financial analysis, we found out that in a year, Rakesh and his family spend Rs. 10.30 lacs.

Step 3 – Have You Ever Calculated What’s Left After Your Expenditure?

Calculate surplus, i.e., the difference between Income & expenses. You’ll 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 save 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 (Difference between Income (Rs. 14 lacs) and spending (Rs. 12 lacs)).

Step 4 – Do You Save Anything?


If the surplus is in positive that means, you have saved something. 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 had found that Rakesh and his family can save Rs. 2 lac in a year.

Step 5 – What Are Your Goals?

Set Your Financial Goals
Set Your Financial Goals

Now comes the planning part. First, decide and then divide your goals into three categories –Short-term, medium-term and long-term goals.

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

You can include any expense which you consider as exceeding your regular expense. The examples can be a travel plan or buy an air conditioner or school admission of the child.

Rakesh has a short-term goal of going for a foreign tour in 2-3 years for which the family would need a sum of Rs. 2 Lacs.

They have the medium-term goal of buying a car worth Rs. Five lacs in next five years.

They have a long-term goal of providing higher education to their son. Assuming that the present cost of higher education is Rs. 10 lacs and the age of son is eight years, Rakesh has ten years to accumulate the sum.

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.

Step 6 – What’s The Amount Which You Would Need For Your Goals?

To identify the goals and time to achieve the goal is not sufficient. You need to identify the amount which you would need when the time comes. Inflation is the factor, which if not considered, will affect your planning.

For Rakesh, 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. Five lacs today will cost Rs. 6.4 lacs after five years. I use mobile app of to calculate compound interest.

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. Ten lacs. Therefore, the amount which you assume initially is different from the amount which you will need in future. This was an important step of personal financial analysis.

Step 7 – Can You Match Your Savings with Your Goals?

If you have any existing savings, map the respective savings to a particular goal.

E.g. – 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 compound interest formula to arrive at the value which it will become when you retire.

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

Step 8 – What’s Your Target Amount?

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

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.

Higher Education Long Term Goal
Higher Education Long Term Goal

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. Ten lacs.

Step 9 – Start Your Investment

Now, since you have identified your target amount which you need to save further, decide the investment plans which you are comfortable with.

If you are a conservative investor, you can go for debt instruments like government bonds, public provident fund, bank fixed deposits, corporate fixed deposit, etc. An aggressive investor or a risk taker can buy equity stocks or company shares. A moderate investor must take a mix of debt instruments and equity stocks or can go for mutual funds.

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 of 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 in or

For Rakesh, 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.

Higher education for son is a long-term goal. Thus some risk can be taken. Therefore, the remaining amount can be invested in an equity mutual fund.

Step 10 – Review Annually

Annually Financial Review
Annually Financial Review

Finally, record everything and annually review if your investments are going on the right path. To do the personal financial analysis, merely check three things –

  1. Check the annual growth of each of your investments. With the existing growth rate, will you be able to reach your financial goals? If not, change the investment.
  2. Check if there is any other goal which was not there in previous year’s plan. If yes, work on it and include it in this year’s financial planning.
  3. Even if your investments have potential to reach your desired goals, is there any new better investment option available. If yes, you can shift some of your investments into the better choice.

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

Also, keep updated with the knowledge and the methods of money saving and goal reaching. Last but not least, keep yourself happy and don’t take unnecessary stress in completing your financial goals. If there is a will, there will be a way.

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 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.)

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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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