Three Phases of Financial Planning Explained!

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phases of Fin plan

When you plan a journey between Mumbai and Delhi, there are phases to planning. The first phase is where you decide your budget. If you are short of money, you save for your trip. In the next phase, you decide whether you will travel by flight or train. You decide whether you will stay in a three or five-star hotel. Finally, you decide what places you are going to visit.

Similarly, we have three phases in financial planning. You have to go in sequence - you cannot jump to any phase as you cannot reach Delhi without booking a flight ticket. First, you need to focus on phase one, complete all the tasks under it and then move to the next phase. 

Below are the three phases of financial planning:

Wealth Accumulation - It is a phase in which you put in the maximum effort and work hard day in and day out. In this stage, you build the foundation of your legacy. The phase is about accumulation, and that comes with saving and investing. 

Saving is only a small part of this phase. You not only have to save money, but also you need to invest the saved amount. Again, investing in any asset will not be of much help. have to invest in instruments that are in line with your goals - those asset classes that will help you achieve your financial goals within the set time. 

As mentioned above, this is the foundation of your legacy, and hence you cannot make any wrong decisions. We will cover every small step in the wealth accumulation phase in the coming articles.

Wealth Preservation - Some of you may be in this stage or perhaps nearing this stage. The biggest problem for investors is that they are not aware such a stage exists. They keep on saving and investing for years and remain in the wealth accumulation phase. Hence, many investors are not able to achieve their financial goals. 

You should be clear about when this stage starts in your financial planning journey and how long it will last. When you are near the wealth preservation phase, your journey changes. Like in life's journey when you get married, many things change - it is a similar transition. In this phase, you start to monitor your retirement corpus more closely, consider buying annuities, rebalance your portfolio - start a movement from equity to debt, and much more.

Wealth Distribution - The last stage is when you are near to your long-term goals - the main being your retirement. Years of saving and investing seem worth in this stage. You are about to start a new inning, and how comfortable the journey will be depends on what you have done in the first two phases. 

In this phase, your focus is creating a regular income for yourself as you won't be receiving monthly paychecks. You will also ensure you are secured for the remaining years by distributing wealth in various secured financial instruments.