Money IQ Series: Financial Planning 101 — Understand Your Money

Nikhila P
6 min readOct 12, 2020

Nothing in our lives is untouched by money. You love it or you hate it, you cannot deny that you need it.

Every aspect of our lives is linked to money, some way or the other. Do we give the attention it deserves?

Let’s face it. The only difference between financial success and financial failure is the way money is managed. Period!

Hence, it almost behooves us to be cognizant of the best practices to plan and manage our finances smartly.

Let’s go step-by-step and explore money management from its very basics.

Financial Planning

Most think financial planning is synonymous with transacting investments or taking an insurance policy.

They tend to begin and stop their financial journey there.

For instance, you were to buy a car worth 7 to 8 Lakh INR/-.

Let’s have a look at the difference planning your purchase can make.

Assuming an ideal EMI for a car in the range of about ₹20,000 and a 4-year loan tenure, if you were to buy the car immediately, the maximum range of price you can look for would be around ₹ 7.7 Lakhs, and you’re paying a total loan interest of ₹ 1.86 Lakhs.

If you start thinking of this 1 year before you buy the car, just by saving ₹10,000 per month you could have afforded a car worth ₹9 Lakhs for the same EMI range.

If you still opt to buy the car at a ₹7.7 Lakhs, your EMI would have reduced to ₹17,000. You get an extra ₹3,000 per month that you can put to good use.

If that math and algorithms are not a headache you would want to take up, and macro factors like market volatility and inflation are complex concepts you want to

Wouldn’t it be amazing if you could

What do finances mean to you?

Ask yourself what financial happiness means to you.

For instance, I would describe financial happiness this way.

“Financial happiness is a perfect balance between meeting my lifestyle aspirations and saving enough to meet all my goals.”

To be aware and mindful of what finances means to you will help start or re-start your financial journey with a renewed sense of purpose.

Financial Goals

“A goal without a plan is just a wish.”

I’m certain you heard this a million times and rightfully so. Because it is timeless and never seizes to be true.

Money isn’t just a number. Money isn’t just a tool.
It is a connection between you and your goals.

Investments, Savings, Deposits, Funds, Schemes, Bonds, Alternative Currencies, so on and so forth are means to create enough wealth to meet your end goals.

What truly matters to you is your life goals; the goal is an experience or possession you desire to have.

A man without a goal is a sea without a rudder.

Your goals are like a compass that guides you in the direction you want to go towards. Without a compass, you’d be lost at sea.

Your financial planning journey should begin with “your goals”.

What exactly are “financial” goals?


Your goals are the personal, big-picture objectives that you set for yourself. When we assign a purpose, amount, and timeline to how you’ll save and spend money., it becomes a “financial” goal.

Planning your finances holistically, through a goal-based approach, is key to achieving financial success and financial freedom eventually.

The first step is to identify and prioritize your goals.

Remember that every goal has three main characteristics.

  1. A specific purpose — What is it?
  2. A specific amount — How much?
  3. A Specific timeframe — By when?

Based on the amount: Big-ticket size, medium-ticket size, and small-ticket size.

Based on the timeframe: Long-term or short-term.

These are the most common goals in everyone’s life.

  1. Buy a Home
  2. Buy a Vehicle
  3. Retirement Corpus
  4. Big Life Events
  5. Save for vacation
  6. Clear all debts
  7. Emergency Fund
  8. Save on Taxes
  9. Child’s Education
  10. Higher Education for self
  11. Long-term wealth
  12. Insurances

Sooner or later, these will be your goals. What if you could be prudent about them and stay committed to achieving them in the best possible way?

Every goal can be accomplished through a series of small steps.

What if your baby steps today can help you reach your goals faster and quicker?

Planning your goals is crucial before you make the investment plunge.

The average of random is zero. When you approach investments randomly, chances are it may not lead you anywhere.

Setting a purposeful, mindful intention helps you make the right decisions in your investment journey.

Always remember that planning is the first step. Investments, deposits, schemes are what follows a robust plan that is tailored for your needs.

If stats are anything to go by, the landscape of financial planning has either be inaccessible or unavailable to most Indians.

More than 80% of the Indian earning population is not financially planned.

MoneyPlanned has got your back and is with you through and through in your journey towards your goals.

Goal Setting

Goal setting is a very important exercise while planning for investments.

These are two key steps in the goal-setting process.

  1. Identifying our goals
  2. Prioritizing our goals

We have seen the most common goals.

Goals could be experiences we want to have. For instance, vacation, big life events such as a wedding, etc fall under this category.

Goals could be possessions we desire to have. For instance, home, car, bike, camera, phone, laptop, and so on.

Assign priorities to these goals.

They could be a super-important goal (HIGH), a dream goal (MEDIUM), or a good-to-have goal(LOW).

Priority could also be assigned based on “ by when” you want to achieve your goals.

Goals could be long-term, medium-term, near-term, or immediate-term.

Savings vs Investments

What does “savings” exactly mean?

Saving is derived from the root word, “safe”.

It is to keep aside your money for future use. The safety of money is of critical importance here.

Investments are made with the objective to earn profits and grow money.

There is a common misconception that Savings and Investments are two completely different things.

They are but two steps of the same process. To invest and grow money, one needs to save. Saving precedes investing.

Considering investments makes sense once you have saved enough.

How to evaluate investments?

We are all tempted and fascinated by the world of investments. Several avid investors have created a lot of wealth for themselves.

As alluring as they may seem, there is no return without risk. The greater the return, the greater the risk. Always.

Let’s demystify investments and understand them from the very fundamentals.

An investment is an asset or an item that we acquire in hope that it will generate income, profit, or return in the future. Capital appreciation is the objective of any investment.

However, before making the investment plunge, the three most important factors to evaluate are:

  1. Safety — how likely is it for me to lose my money!
  2. Liquidity — how easy is it to get my hands on my money!
  3. Returns — how much profit can I make over time!

Few other parameters to consider are the convenience of investment (SIP, lumpsum, etc), ticket-size of investment(minimum investment required, etc), taxability of earnings, tax deduction, etc.

Asset Classes

God, what on earth is an “Asset Class”?

If that’s you, worry not! We’ll bring it down in such a way that you will have no more doubts.

Here, asset denotes an item, resource, or property and class denotes the classification based on similar properties.

Asset class essentially means an avenue for investment with a lot of similar traits.

Each avenue of investment can have various sub-categories but in essence, the overarching traits remain the same for each main category.

There are several asset classes.

Real estate is an asset class.

Popular commodities like gold, silver belong to another asset class.

Equity investments (basically you owning a piece of a public company) are an asset class.

Fixed Income, bonds(government securities, corporate papers, etc) and debt investments belong to yet another asset class.

For instance, real estate is an asset category that has a few typical characteristics.
Location plays a major role in deciding the worth of that asset and its performance. It is illiquid and non-divisible.
The transaction costs such as the brokerage charges, registration charges are quite high which brings down the ROI.
Other than capital appreciation, it also has the ability to earn something for you.

These are traits unique to real-estate investments alone. Hence it is classified under one asset class.