How to Create a Practical Financial Plan? The 6-Step DIY Process for Indian Investors

You don’t need to be a finance expert to start planning your future. With a clear process and a bit of structure, you can take control of your money and move steadily toward your goals — step by step.

Financial planning isn’t just about choosing investments. It’s about understanding where you stand today, defining what you want tomorrow, and building a roadmap that connects the two. Whether you’re saving for a car, your child’s education, or an early retirement, a structured approach gives you confidence and direction.

This guide outlines a simple 6-step process that anyone can follow. Throughout the article, you’ll also find links to free, easy-to-use tools that can help you calculate, track, and organize your financial plan.

Let’s walk through the six key steps that form the foundation of a well-structured financial plan.

Step 1: Understand Your Current Financial Situation

The first step in financial planning is understanding where you stand today. Before setting goals or making investment choices, it’s essential to have a clear view of your income, expenses, assets, and liabilities. This forms the foundation of every decision that follows.

Start by identifying your sources of income. This includes anything that adds money to your account:

• Monthly salary
  
• Freelance or business income
  
• Rental income
  
• Dividends or interest from savings and investments
  

Next, review your monthly expenses. To make this easier, divide them into three broad categories:

• Fixed expenses – Rent, EMIs, insurance premiums
  
• Variable expenses – Groceries, utility bills, fuel
  
• Discretionary expenses – Subscriptions, dining out, travel
  

If you’re not tracking expenses regularly, go through the last two months of bank or UPI statements. You’ll likely spot patterns you hadn’t noticed before.

Once your cash flow is mapped out, take a list of your assets, everything you own that holds financial value:

• Savings in bank accounts
  
• Fixed deposits, PPF, EPF
  
• Mutual funds, stocks, bonds
  
• Gold, real estate, or other investments
  

Then, list all your liabilities (what you owe):

• Home loans, personal loans, vehicle loans
  
• Credit card dues
  
• Outstanding EMIs or informal borrowings
  

This snapshot helps you calculate your net worth (Assets – Liabilities) and tells you how much financial flexibility you currently have.

You can do this exercise manually, but free digital tools can make it easier:

• ET Money – For expense tracking and investment overview
  
• Axio App or ZOHO expense tracker – For automated expense categorization
  
• Google Sheets – For creating your own monthly budget or net worth tracker
  
• SEBI Net Worth Calculator – To estimate your overall financial position
  

You don’t have to get everything perfect at this stage. The goal is to become aware of your current position. Once you know where you’re starting from, every step that follows will feel more structured and achievable.

Step 2: Set Your Financial Goals

Once you have a clear picture of your current financial situation, the next step is to define where you want to go. Setting financial goals gives your money a direction. Without goals, saving and investing can feel aimless, but with goals in place, every rupee you put aside serves a purpose.

Start by listing out all the things you want to achieve with your money. Don’t worry about being “realistic” just yet, this is about identifying your priorities. Once you have a broad list, categorize them based on their time horizon:

• Short-term goals (1–3 years):
  These might include building an emergency fund, saving for a vacation, buying a laptop, or repaying a short-term loan.
  
• Medium-term goals (3–7 years):
  Think about goals like buying a car, planning a wedding, building a down payment for a house, or switching careers.
  
• Long-term goals (7+ years):
  This is where you’ll usually find goals like children’s education, retirement, or buying a second home.
  

When you list these goals, try to define them using the SMART framework:

• Specific – What exactly is the goal?
  
• Measurable – How much money do you need?
  
• Achievable – Is it realistic based on your current income?
  
• Relevant – Does it align with your life priorities?
  
• Time-bound – When do you want to achieve it?
  

Examples:

• Build an emergency fund of ₹1.5 lakh within 12 months
  
• Save ₹5 lakh for a car down payment in 2 years
  
• Accumulate ₹50 lakh for your child’s college education in 10 years
  
• Build a ₹3 crore retirement fund by the time you turn 55
  

Tools that can help you define goals:

• Finology Goal Calculator – to estimate future value needs
  
• INDmoney – for setting and tracking long-term financial goals
  
• Google Sheets – for manually organizing goals with target dates and amounts
  

Clear goals bring structure to your financial decisions. They also help you prioritize. You may not be able to fund everything at once, and that’s okay. What matters is knowing what matters most, and working steadily toward it.

Step 3: Analyze Gaps and Prioritize

Once your goals are mapped out, it’s time to check if your current financial situation can support them. This is where planning becomes real and often, a little uncomfortable. But that’s exactly why this step matters.

Start by taking each goal and asking: “Am I on track?”
Let’s say you want to build a ₹50 lakh corpus for your child’s education in the next 10 years. You run the numbers through a goal calculator, like the one on Scripbox or ClearTax, and it tells you you’ll need to invest ₹25,000/month. But when you look at your budget, you realize you can only manage ₹12,000/month.

That’s your GAP. (We will discuss later on this post how to gradually close this gap, keep reading.) 

Almost every financial plan has a few of these. Some gaps are numerical. Others are structural, like having no insurance to back up your goals if something goes wrong.

This is also where inflation can quietly erode your future. Take education, for instance. As of May 2025, India’s education inflation stood at 4.12% year-on-year. That means a ₹10 lakh college fund today could cost nearly ₹15 lakh by the time you need it. If your investments aren’t growing faster than inflation, your goals will keep drifting further away, even if you’re saving regularly.

You can use the following tools to help analyze the gaps and get a better understanding. 

• ClearTax Retirement Calculator to assess whether your retirement plan is on track
  
• EMI Affordability Calculator if you’re planning to borrow for a big purchase
  
• Turtlemint or Policybazaar to check if your insurance coverage matches your life stage
  

Not all gaps need fixing right away. What matters is that you see them clearly. Once they’re visible, you can start making trade-offs, push one goal forward by a year, increase your SIP using a step-up strategy, or pause a discretionary goal until your income grows.

This stage of planning isn’t about perfection. It’s about alignment. You may not have the perfect match between your income and your goals, but when you know where you fall short, you can prioritize what matters most.

Step 4: Build Your Plan

Now that you’ve clarified your goals and identified the gaps, it’s time to turn your intentions into a working financial plan, one that’s built on logic, timelines, and simple rules that keep you protected along the way.

Start by translating your goals into numbers: how much should you invest, and where? A goal calculator can help you estimate the monthly amount required to reach each target on time. Then, map those investments to the right instruments based on the goal’s time horizon.

Choose your asset allocation based on time:

• Short-term goals (1–3 years):
  Prioritize safety and liquidity. Use debt instruments like liquid funds, short-term debt funds, or recurring deposits.
  
• Medium-term goals (3–7 years):
  Use a balanced mix. Consider conservative hybrid funds or balanced advantage funds that adjust equity exposure based on market conditions.
  
• Long-term goals (7+ years):
  Allocate more toward equity. Index funds, flexicap funds, or even NPS (Tier 1) are well-suited for compounding over the long run.
  

Don’t ignore these foundational elements:

Emergency Fund: Your first line of defence

Before you invest in any future goal, build a financial cushion for emergencies. The rule of thumb is to save 3–6 months’ worth of living expenses in a liquid fund or sweep-in FD.

If your income is unstable (e.g., self-employed or gig worker) or you have large EMIs, consider increasing this buffer to 6–9 months, and ensure that EMIs are also covered in the fund.

Term Insurance: Protecting your income, not replacing products

To calculate how much term insurance you need, you can use Human Life Value (HLV) calculators available on sites like Policybazaar or Turtlemint.

But a simpler thumb rule is:

Cover = 10 to 15 times your annual income
For example, if your annual income is ₹10 lakh, aim for a cover of ₹1 to ₹1.5 crore.

Avoid mixing insurance with investment. A plain term plan is more affordable and serves the purpose best.

Health Insurance: Employer coverage is not enough

Even if you’re covered under your company’s group insurance plan, consider buying a separate family floater or individual health policy.

Medical inflation in India is high (often 10–12%+ annually), and job switches or sabbaticals can leave you exposed. A ₹10 lakh cover is a reasonable starting point for a nuclear family.

Tax-Saving Strategies: Choose based on regime, not habit

Tax planning is an important part of your financial strategy, but it must align with the tax regime you choose.

Old Tax Regime:

If you opt for this, you can reduce your taxable income by claiming deductions under various sections:

• Section 80C (limit ₹1.5 lakh): ELSS mutual funds, PPF, EPF, life insurance premiums, principal on home loan
  
• Section 80D: Health insurance premiums (₹25,000–₹50,000 depending on age)
  
• Section 80CCD(1B): Additional ₹50,000 deduction on NPS
  

These are useful when you have deductions that exceed the benefit from lower slab rates.

New Tax Regime:

If you opt for this, you cannot claim most deductions, but you get lower slab rates. Choose this if:

• You have few or no deductions
  
• You’re early in your career or renting low-cost housing
  
• You prefer simplicity and have higher liquidity requirements
  

Tip: Use a tax comparison tool (like the one on Cleartax or ET Wealth) to compare both regimes before the financial year begins.

Tools That Can Help You Structure Your Plan:

• Kuvera – Lets you assign investments to specific financial goals and track progress
  
• Tavaga – Provides goal-based investment recommendations with a user-friendly interface
  
• BankBazaar Tax Calculator – Helps you compare old vs new tax regimes based on your income and deductions
  

Can’t Invest the Full Amount Yet? Here’s What You Can Do

One of the most common moments of panic in financial planning comes right after you use a goal calculator. You enter your child’s education goal or your retirement dream, hit “Calculate,” and it tells you to invest ₹20,000 a month starting now. You freeze and you shut the tab. And you tell yourself, “Maybe next year.”

But here’s the thing: you don’t need to start with the perfect number. You just need to start.

Most people can’t spare ₹20,000 or ₹30,000 a month upfront. That’s not a failure, it’s just reality, which is why there’s a smarter, more realistic way to approach this: the Step-Up SIP.

This isn’t a product. It’s simply a method. Instead of trying to fund the full amount from day one, you begin with what’s affordable, say ₹10,000/month, and gradually increase your contribution every year as your income grows. Think of it like building a staircase toward your goal instead of trying to make a giant leap.

Let’s say you start with ₹10,000/month and increase it by 10% annually. In the second year, it becomes ₹11,000. Then ₹12,100. By the 5th year, you’re investing ₹14,641. And by the 10th, nearly ₹26,000 per month. Without even realising it, you’ll have caught up, or come close to someone who started with a ₹20,000 SIP right from the beginning.

Here’s how that looks:

Year	SIP Amount (₹)
1	₹10,000
2	₹11,000
3	₹12,100
4	₹13,310
5	₹14,641
10	₹25,937

This is especially useful for professionals in their 20s and 30s, when income tends to grow faster than expenses. It allows you to stay committed to long-term goals without derailing your present lifestyle.

If you want to visualise this for your own scenario, you can try the following free tools:

• Scripbox Step-Up SIP Calculator – Simple, mobile-friendly and beginner-friendly
  
• ET Money SIP Growth Estimator – Shows SIP outcome across years with optional step-up input
  
• Groww SIP Calculator – Allows for monthly investment growth estimation with a clean interface
  

You can also follow a simple guideline:

Start with 10% of your income and increase it by 10% every year.
It’s called the 10–10 Rule, and it works because it’s simple enough to stick with.

Financial planning doesn’t have to be rigid. It just has to be responsive. And Step-Up SIPs give you the flexibility to grow into your goals, one year at a time.

Step 5: Implement Your Plan

By now, you’ve done the heavy lifting. You’ve taken stock of your financial life, set clear goals, identified the gaps, and designed a plan tailored to your needs. But none of that matters unless you take the next step, putting the plan into action.

This is the part where many people hesitate. Not because they’re unwilling, but because they’re afraid of getting it wrong. Which fund should I pick? What if I make a mistake? Should I wait for the market to correct?

Here’s the truth: starting matters more than starting perfectly.

If you’ve planned your goals with some thought and matched them with the right investment types (debt for short-term, equity for long-term), you’ve already avoided 90% of the mistakes people make. Now it’s about execution.

Here’s how to take that first step:

• Open the right investment accounts:
  Set up your SIPs on platforms like Kuvera, Zerodha Coin, or Tavaga tools that let you invest in direct mutual funds with goal-tagging features.
  
• Automate your money movements:
  Enable monthly SIPs, schedule contributions to NPS or PPF, and use standing instructions to move funds right after salary credit. Automation builds consistency, not just convenience.
  
• Buy insurance without delay:
  Finalise your term and health insurance. Use platforms like Ditto, Policybazaar, or use Welfin insurance service to compare plans, check IRDAI registration status, and complete online purchase.
  
• Digitise your policy management:
  Once your policies are active, don’t rely on email clutter or physical documents. Instead, register for an e-Insurance Account (eIA) — a secure, IRDAI-approved digital vault to store all your insurance policies.
  Your eIA:
  
  • Lets you view all life, health, and general insurance policies in one place
    
  • Updates automatically when new policies are issued
    
  • Provides easy access for your family and nominees
    
  • Requires just one-time KYC
    You can open one through repositories like CAMSRep, CDSL Insurance Repository (centrico), NSDL, or Karvy Insurance Repository, and it’s free.
    
• Use simple reminders to stay on track:
  Add calendar alerts to review your goals quarterly. Update your Google Sheet or app tracker monthly. Many platforms offer nudges when SIPs are skipped. Turn those on.
  

You don’t need to execute everything in a single day. But you do need to start. Markets will always fluctuate, interest rates will change, and new products will keep appearing. But your future won’t wait.

Action is what turns a plan into progress.

Step 6: Review and Adjust Regularly

Financial planning isn’t something you do once and forget. Life changes, and your financial plan should change with it.

Maybe you’ve changed jobs or your income has increased. Maybe you’ve had a child, bought a home, or even cleared a major loan. Each of these moments shifts your financial landscape, and that’s why reviewing your plan is just as important as building it.

A good rule of thumb is to review your plan at least once a year, and whenever a major life event occurs. This doesn’t need to be a full-day audit just a focused review of three key areas:

1. Check Your Goal Progress

Look at how each goal is tracking:

• Are your SIPs running as planned?
  
• Has your investment grown in line with your assumptions?
  
• Do you need to adjust the timeline or increase contributions?
  

Many platforms like Kuvera, INDmoney, or even your own Google Sheet make it easy to track this at a glance.

2. Rebalance Your Portfolio

As markets move, your asset allocation may drift. For example, at the beginning of the investment, you maintained a 60% equity and 40% debt; if equity markets have performed well, your portfolio might now be 80% equity when you originally planned for 60%.

That’s a cue to rebalance, sell some equity, and shift into debt to bring your allocation back to its original mix. This helps manage risk and keeps your plan aligned with your comfort zone.

Tip: Most platforms show current asset allocation visually; use that to compare with your intended split.

3. Reassess Your Coverage and Protection

Has your family grown? Has your loan burden changed? Are your term and health covers still adequate?

A quick recalibration using a Human Life Value (HLV) calculator or an insurance gap check on sites like Ditto or Turtlemint can help you stay prepared.

Bonus: Adjust for Inflation

Even if your investments are on track, inflation quietly eats into your goal values. For example, a goal that needed ₹50 lakh last year might now require ₹52–53 lakh. Tools like Groww’s inflation calculators can help you project and adjust targets accordingly.

Reviewing your plan isn’t about finding flaws; it’s about keeping pace with life. A flexible plan is a resilient plan. And resilience, not perfection, is what builds financial success over time.

You Don’t Need to Be Perfect. You Just Need to Begin.

Financial planning can feel overwhelming, especially when you see big numbers, rising expenses, and uncertain markets. But behind every successful plan is something simple: clarity, consistency, and small steps taken over time.

You don’t need to have all the answers today. You just need to start with what you have, with what you know, and with a willingness to learn as you go.

This 6-step process isn’t just a checklist. It’s a framework to help you take control of your money, set goals that matter, and build a future that feels secure and intentional.

And if somewhere along the way you feel stuck, unsure, or want a second opinion, that’s okay too. A good advisor can step in when you need one. But until then, you now have everything you need to begin

Need help putting your plan into action?
At Welfin, we help individuals turn their financial goals into step-by-step strategies. If you ever feel stuck, overwhelmed, or just want a second pair of eyes on your plan, we’re here when you need us.