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Many people have a genuine interest in being financially disciplined and some would even want a financial plan in place. But they face difficulties in answering questions like 'where to start?' and 'how to move ahead?'. There are too many factors affecting your personal finance and a lack of understanding about one's own needs.

A financial planning pyramid answers this confusion by showing where to begin, how to prioritise goals and how to move up the priority ladder when building a financial plan, to ensure you meet your goals in life. It gives a clear picture on laying the foundations of a healthy financial life.

HEALTHY FINANCIALS

Income, expenditure, assets and liabilities form the foundation of finances, whether it be individuals or an institution. To start building a healthy financial life, one has to take stock of all four elements in a holistic manner and establish proper ratios amongst these. Only steady and higher income doesn't mean all your financial goals can be addressed. One has to have acontrolled expenditure and make ahabit to save a fixed percentage of his/her income, which ideally should be 25-30 per cent, giving you leeway for investing for your future goals.

Your assets are formed over time, of investment avenues like stocks, mutual funds, fixed deposits, real estate, and so on. The liabilities such as home loan, car loan, and personal loan dig into your assets or reduce your saving capabilities.

It is best not to have a liability on your head, except a home loan, which creates an asset. Assets over liabilities gives your networth, which has to be positive, should be commensurate with your age and income. dents, job loss, fire, and so on.

All your calculations can go haywire if any of these events strike you. What will happen to the home loan or children's higher education, if you meet with an accident and die eventually? The savings can be wiped out if you are hospitalised for serious ailment. Insurance against all these perils is the second aspect of any financial plan. It lays a strong foundation, from where you can start building wealth, which cannot be shaken easily.

One should also have a contingency fund in place, called contingency or emergency kitty, amounting to around six months of your monthly expenses and instalment payments. This will come handy in case of a job/business loss or medical emergencies in the family.

PRIMARY GOALS

After healthy financials and adequate of every family. The charm and pride of owning a house should be the primary objective of any individual. Next, would be children's education, which as parents one would like to fund, and not compel children to get an education loan. With education costs skyrocketing, an engineering degree and a post graduation in a reputed institute can cost up to `10 lakh each.

Retirement should also figure high on your list of goals, and if you are banking on your children or your employment's pension benefits, think again. These may not be enough.

Once you have figured how much these goals will cost you today and in future, you can formalise an investment strategy. Many a time, investing through systematic investment plans (SIPs) in diversified equity mutual funds will help if you have long-term goals. Choosing the right investment product, based on your investment horizon equated monthly instalment.

On buying a vehicle, if it is helpment strategy for secondary goals, based on time horizon.

TAX AND ESTATE

Many a time, tax-saving happens effortlessly, but tax planning is what you should focus on. That is, utilising tax-saving instruments to address one of your goals above and not buy on an ad hoc basis.

And, estate planning is about passing on your assets (called estate in legal terms) to your heirs. An extremely popular way to do estate planning is do nothing and leave it to fate! Absence of a will can lead to conflict among family members.

All of which is why a financial planning pyramid can be very beneficial when you get down to the job. It gives you clarity on what the plan should address and how to prioritise the various aspects of financial life.

Happy Investing!!

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