5 smart ways to create and manage a long-term financial plan

Your long-term financial plan is your ticket to achieving your long-term financial goals!

Representative Image

Your long-term financial plan is your ticket to achieving your long-term financial goals. Typically, we all have dreams. They come in a variety of formats. You want to have a house by the sea, a peaceful retired life, send your children to the best universities, celebrate a grand wedding for your children, upgrade to a high-end SUV, take off on an exotic holiday etc. The problem is that all these dreams cost money. That means; unless you make the required funds available, these will remain just dreams!

That is why the entire aspect of financial planning, goal setting, and investment matrix become so important in this context. There are 5 key steps involved in creating and managing a long-term financial plan.

First, outline your goals and the time lines

This is the primary step. You need to document your goals with specific timelines. For example, you plan to retire at the age of 55, which is 30 years away. Your child is just 1 year old and you want to start planning for her higher education after 16 years. You also want to shift out of your scooter into a car in 2 years and you want to buy a house in another 4 years. Typically, most of us buy cars and homes on loan and it is only the 15% margin that we need to plan and pay for. Once you document your goals, you have a clear picture of what you want to achieve and by what time period. This will determine your investment mix and also your risk taking capacity.

Put monetary values to each of these goals

This is the critical step in your financial planning. If you are planning to buy a car worth Rs 5 lakh, then you need to plan to save Rs 75,000 (15% of the value) within 2 years. Similarly, if the value of your home is going to be Rs.80 lakh, then you need to plan for Rs12 lakh within 4 years. These are the simpler goals to address. Retirement and child’s education are much more into the future and you are likely to see a lot of macroeconomic uncertainty till then. So you need to first inflation the costs well into the future and you also need to provide for exigencies by insuring your life, your assets and also your liabilities.

Work backwards and arrive at the investment mix

By now you have already put monetary values to all your medium term and long term goals. You know how much you require in the short term, medium term and the long term. Now you need to plan in such a way that your investments grow to that level. But before that you need to be very clear about your investment mix to achieve these goals. For short-term goals like your car loan margin in 2 years, you cannot take the risk of equities. Even debt funds are vulnerable to interest rate risks. The answer may lie in investing this money in liquid funds or short-term bond funds. For medium-term targets you can look at bond funds. But for longer-term targets like child’s education and retirement, you must look at equity. It is only equity that can work hard for you and multiply your wealth over time. At this stage you have pegged your investment mix against your goal values.

Determine the quantum of SIPs to be pegged to goals

It is not enough to estimate the fund requirements and determine the investment mix. That is just the plan. You now need to action the plan. Long-term financial planning is best done through SIPs. There are two reasons. Firstly, the SIPs can synchronize with your income flows and hence the pressure is not felt. Secondly, they give you the advantage of rupee cost averaging over time and you do not have to worry about timing the market. Here is how you can go about it…



Target Goal After (X) years Investment Asset Annual Yield Monthly SIP
Car Margin (Rs.75K needed)

2 Years

Liquid Funds



Home Margin (Rs.12 lakh needed)

4 Years

Bond Funds



Child’s Education (Rs.1.50 crore)

16 Years

Equity Funds



Retirement (Rs.3.50 crore needed)

30 Years

Equity Funds



Total Monthly SIP allocation


In the above table, you get a clear picture of how much you need to save per month and where you need to invest to reach all your targets. Of course, the first two items are short-term allocations while the last two are long-term allocations. You can work your household budget backward based on your goal commitments. That is the clarity that you get!

5. Regularly review and monitor the long-term financial plan

Creating the plan is not the end of your job. You also need to monitor it on a regular basis. Are your investment returns proceeding according to your long-term financial plan? Are your specific funds underperforming the market and the peer group? Do you assumptions on inflation, bond yields and equity returns still hold? Have tax provisions changed in such a way as to impact your financial plan? One example is the 10% tax on LTCG imposed in the Budget 2018. Typically, monitoring of your plan should be done at least once a year and under circumstances when you feel it is warranted!

The most basic rule in financial planning is that you maintain discipline and start the plan as early as possible. The earlier you start, the more time works in your favour.

(By Vaibhav Agrawal, Head of Research and ARQ, Angel Broking)

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express Telegram Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.