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2. “Financial retirement planning is
more necessary for people with
lower salaries than for those
with higher incomes”

3. Factors Affecting Financial Planning
• Income
• Expenses
• Debt
• Savings
• Investments
• Emergency Preparedness
• Age
• Dependents

4. Factors Affecting Financial Planning
• Goals
• Risk tolerance
• Cultural trends
• Inflation
• Interest rates
• Economic growth of the country
• Political issues

5. Income
Income is a major factor that affects your financial planning. How much
you spend, save or invest will depend on your income. It is always
better to have multiple sources of income. You cannot just rely on your
salary or business income to run your household. Create multiple
sources of income by taking up freelancing opportunities or investing in
income-generating assets.

6. Expenses
One of the biggest problems people currently face is overspending. There
are many who spend beyond their means, leaving them with no savings and
a pile of debt. It is important to keep track of your expenses as it is the next
important factor that plays a significant role in financial planning. You must
know where you are spending your money, as this will help you trim down
unnecessary expenses and break your cycle of living paycheck to paycheck.
However, it is important to keep in mind that you will have monthly
expenses such as rent, transportation, and food that you cannot avoid.
You must ensure you budget these expenses into your financial plan so you
are not compromising in the present to save for the future.

7. Debt
In the current scenario, taking debt isn’t wrong. In fact, you must know
how to use debt strategically to spread out your expenses. There are
many credit cards that offer rewards. You can use these rewards to
reduce your expenses. However, you should know how to use debt
responsibly. This is because debt can be a major hurdle in financial
planning. Taking too much debt can harm your finances, affecting your
present and the future.

8. Savings
Savings are an essential part of financial planning. Without savings, you
will not be able to fund any unexpected expenses or emergencies. It is
always wise to have a separate savings account where you can transfer
a certain amount every month. You must ensure you don’t use this
account for your regular expenses.

9. Investments
Savings are important to fund your unexpected expenses, but it is not
enough for all your future financial goals. To ensure you have enough
money for all your future financial needs, you must invest. The market
has a host of investment options for you to invest in. Investing will
make your money work for you and help in accumulating wealth for the
long term. All you have to do is select the most appropriate ones for
you and invest in them. If you can’t decide where to invest, you can
always approach a financial advisor who will help you out with your
investments.

10. Emergency Preparedness
We never know when an emergency can knock on your door. Be it losing
your job, meeting with an accident, or a natural disaster. All of these can
create a dent in your finances if you are not prepared for it. Hence, it is
important to take life insurance health insurance, and have an emergency
fund. Life and health insurance will take care of your family’s financial
security and your hospital bills, whereas your emergency fund will help in
paying your unexpected bills. It is recommended that you must take a life
cover of a minimum of ten times your income, health insurance of a
minimum of Rs. 15 lakhs, and have an emergency fund that can cover at
least 6 months of your expenses.

11. Age
Age is an important determinant of financial planning. This is because
your age will decide what kind of investments will suit you and what is
your risk tolerance level. If you are someone in your 20s, you can pick
riskier investments as you will have a long tenure for your investments.
Even if something goes wrong, you will have time to rebuild your
capital. However, if you are in your late 40s or 50s, then you will have
fewer years until retirement, and you cannot invest in risky
investments.

12. Dependents
The number of people who depend on your income increases as you
grow in age. You will have to support your ageing parents and your
children. Spending money for their medical care and education will be a
top priority for you. Hence, the number of dependents you have will
affect your financial planning. It is best to prioritise savings when you
are young and have fewer dependents, so you need not worry about
retirement when you are old.

13. Goals
If You want to travel or buy expensive clothes or accessories for yourself. All
these are your goals, which can affect financial planning. It is not right to ignore
these goals just because you can save for your retirement. Instead, you must
inculcate these goals into your financial planning so you can achieve them and
also accumulate wealth for your future. When you set a goal, make sure it is
realistic and achievable. Moreover, define the goal properly to know when and
how much you would need to achieve this goal. For example, going on a
vacation to Europe is a very vague goal. A more precise goal would be going on
a one-month vacation to Europe in 3 years. This will help you decide how much
it will cost and how much you need to set aside every month to achieve this
goal.

14. Risk tolerance
• Your risk tolerance is another important factor in financial planning.
Risk tolerance or risk appetite is how much risk you can take when
investing. It is determined by your age, number of dependents, and
your view on the stock market. Your risk tolerance level determines
which investments suit you the best. You can know your risk tolerance
level by taking a risk profiling questionnaire. There are many websites
that offer free risk profiling.

15. Cultural trends
All the factors up until now are more or less personal factors that affect
financial planning. It is important to understand that there are several external
factors that can affect your financial planning, the first one being cultural
trends. Cultural trends can influence your financial decisions, such as spending
and saving habits. If you live in a society that prioritises saving and investing,
you will be inclined towards saving. You will prefer saving over spending.
However, if you are influenced by societal trends of buying material
possessions that create a dent in your pocket, then you might spend more on
luxuries. Being aware of how the society around you influences your financial
behaviour will help you make more informed decisions.

16. Inflation
Inflation is the rise in prices of essential commodities, which can erode
your purchasing power. If inflation rates in a country are high, then they
will reduce your real return on your investments. In such cases, you
must pick investments that have a higher return than the inflation rate,
which will help mitigate the effect of inflation on your money.

17. Interest rates
Interest rates are another important factor that can affect your financial
planning. If an economy has high interest rates, the cost of borrowing
money will be high if you are planning to buy a home and have saved
up for a down payment. In case the interest rates are high, then you
will be paying a higher EMI (equated Monthly Instalment) than when
the interest rates were low. This increases your expenses, and your
savings will be reduced.