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What are the types of financial planning and why do you need them?

Financial planning is a key component of personal finance. Let us see what are the different types of financial planning and how to choose the best one for your needs.

what are the types of financial planning

Financial planning is a key component of personal finance, and it helps us manage our money to achieve our goals. However, according to a report from Fe­bruary 2023, only 40% of survey respondents indicate­d that they had engaged in ade­quate financial planning so far, while the othe­r 60% reported they had not done­ enough preparation. 

The reports indicate that many people in India are not well-versed about the importance and benefits of planning their finances.

But, according to a survey from Oct 2023, 80 out of 100 respondents state­d that engaging a financial planner had enhance­d their quality of life by helping the­m better comprehe­nd their long-term monetary obje­ctives and priorities. 

In today’s article, let’s discuss the meaning, benefits and types of financial planning. 

Also read: The importance of financial planning for newlyweds

Understanding financial planning

Financial planning is crucial in allowing individuals and families to manage­ their finances to achieve­ important objectives both in the­ short and long run. The process involves care­fully assessing one’s financial situation and forecasting future nee­ds, then developing a strate­gy to coordinate spending, saving, investing, and insurance to optimise how financial resources are­ utilised. 

Taking a holistic perspe­ctive to examine one’s complete financial picture is ke­y to financial planning. This involves establishing both short and long-term financial objectives based on your risk tole­rance and timeline, the­n devising a strategic approach to achieve­ those aims. 

Thus, financial planning involves delving into various aspects of finance, including savings, taxes, retirement, investing, insurance, etc. 

In simple words, financial planning keeps our finances in control so that we can achieve all our goals. 

Why do you need a financial plan? 

A financial plan offers various benefits and helps individuals improve their financial and mental health.

  • Having a strategic financial plan helps in ascertaining financial goals. It also helps follow the steps and track the progress while achieving a financial milestone.
  • A financial plan allows individuals to avoid distractions and remain focused towards important matters, improving their accountability.
  • With a financial plan, individuals are better prepared for emergencies. This helps to avoid debts and other obligations for urgent needs.
  • A vital component of financial planning is preparing for retirement. Hence, it helps secure the future. 
  • Since financial planning covers various aspects, including insurance, savings, retirement, etc., it helps individuals be worry-free and have a calmer mindset.

Also read: Financial Planning for Individuals and Couples

Types of financial planning

Based on the different aspects of personal finance, financial planning is divided into the following types:

Cash flow planning 

This aspect of financial planning deals with money flow to and from one’s account. It encompasses all the activities related to earning money and spending it.

Cash flow planning covers the different sources of income for an individual, along with the different expenses that one may incur. It also discusses how one can plan their monthly budget and allocate sufficiently for saving and investment. Allocating a portion of funds for emergencies is a significant requirement of cash flow planning.

Insurance planning

Insurance is a policy that helps protect an individual from monetary losses incurred in various circumstances. Having health, medical, vehicle, life, and other forms of insurance is crucial to be prepared for emergency and unforeseen situations.

Most individuals working in the corporate sector have medical insurance as one of the benefits provided by their companies. But for those without this facility, owning medical insurance privately, and all the other forms of insurance is essential. Insurance policies come in handy at the time of accidents, medical emergencies, deaths, etc.

Retirement planning 

Planning for retirement is one of the primary aspects of personal finance. Retirement planning helps individuals enjoy their retiral, without worrying about money.

Most people wait for retirement to enjoy other pleasures of life, but as soon as they are retired, they fear the lack of income and feeling of financial dependency. Retirement planning helps manage this efficiently and be financially independent even without a full-time job.

There are various thumb rules around retirement planning. A popular one is to allocate 10-15% of monthly income towards a retirement fund.

Tax planning

While tax evasion is a crime, tax avoidance is considered legal. Reducing tax liability through the available legal options helps individuals retain more income at their disposal. This increases the opportunity to spend and save more effectively. 

Understanding the different tax slabs, tax deductions, and exemptions is crucial in saving taxes in accordance with the law.

Also read: How to do tax planning for high-income earners?

Investment planning 

Some people use the terms saving and investing synonymously. However, they are two different concepts. While saving revolves around conserving money, investing revolves around increasing money’s value.

Investment planning discusses the different options where individuals can invest their money to grow their wealth. Some common investment options are stocks, bonds, mutual funds, real estate, etc. Analysing the risk and return of each avenue and allocating funds accordingly to reap maximum benefits, is the core of investment planning.

How to create a financial plan?

Here are some simple steps to create a solid financial plan:

  • The first step is to analyse the current financial position, including the present income source, list of expenses, planned future commitments, etc.
  • Knowing your financial standpoint makes it easier to set financial goals. The goal is more realistic when it is determined based on the present financial situation.
  • The next step is to prepare a budget that helps achieve the set goal. The budget must factor in expenses, savings, investments, etc.   
  • The different thumb rules for investment, savings, tax planning and retirement can be emulated to come up with a financial plan that meets the individual’s needs and objectives.
  • The last, but effective step is to review the plan at regular intervals to ensure it is in accordance with the end financial goal. Certain tweaks to the plan may be required when the individual’s income and priorities, economic policies, etc., change.


Financial planning is an essential aspect of personal finance. Understanding the different types of financial planning is crucial to preparing a solid and fool-proof strategy that helps achieve financial objectives. Setting financial objectives and planning efficiently to meet them, helps achieve financial freedom early on in one’s life.

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StockGro Team

StockGro is India’s first and largest ‘Social Investment’ platform aimed at helping you master the art of “Trading & Investment”. Trade, Invest and get rewarded to Learn everything about ‘Investments’ the fun-filled way.

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