Financial Planning For Beginners : How to Get Started - Pillow

November 19, 2022
Mins Read
Table of Contents

What is Financial Planning?

The roadmap to meeting all your financial goals is called a financial plan. It provides a comprehensive solution for bridging the gap between your future goals and your present financial situation through smart investment strategies.  



Financial planning is a process where you save and invest regularly to achieve your long-term and short-term financial goals. Some examples of financial goals include retirement and emergency funds. 

Achieving your financial goals needs financial planning. You begin by assessing your current financial status and analysing your financial goals using the SMART (Specific, Measurable, Achievable, Realistic, and Timely) principles. You can then make investments using the right asset allocation to achieve your financial goals.

The starting point of a financial plan is a budget, where your current monthly income and expense are analysed. You can engage a personal finance specialist to help you design your financial plan if required. 

What is Financial Planning?

Financial planning is the process followed for creating a financial plan. It includes managing your finances wisely, so you're prepared for short-term financial goals like emergency funds, a down payment for your house, or long-term financial goals like higher education for your children and retirement. 

Your financial goals can be analysed by a personal finance expert who specializes in financial planning. The process starts with your present financial situation to check your cash flow, which is the difference between your income and your monthly expense. If you manage your cash flow well, you have a higher chance of realising your financial goals

Once your savings are determined, the next step is to invest them into different asset classes depending on your risk tolerance. Asset classes include stocks, bonds, real estate, and commodities. An annual review is a key aspect of financial planning to check whether you're on track or not. 

Different Types of Financial Planning

Financial planning includes the following: 

1. Tax Planning

Financial planning can help you save taxes by availing of the various deductions and allowances available for Nigerian citizens.

The consolidated relief allowance, for example, is higher than 200,000 NGN or 21% of your gross income. Life insurance premiums and NHF contributions are allowable deductions. 

2. Estate Planning

Proper financial planning allows you to pass on your movable and immovable property smoothly. Some options include private trusts, power of attorney, and wills. 

3. Retirement Planning

Planning for retirement is part of financial planning that will help you live comfortably in your post-retirement years. Your current expense is an important factor for calculating the retirement corpus required. 

4. Philanthropic Planning

You might want to donate to a cause after you die. Financial planning helps you to plan for philanthropy as well. You can create a charitable trust to contribute to your favorite charity. 

5. Education Funding Planning

The cost of higher education in Nigeria is around 70,000 NGN. Adequate financial planning can help you easily fund this financial goal.

6. Investment Planning

Financial planning can help you decide how much you need to invest for all your financial goals by defining the timeline and future value in Naira for each goal. 

7. Insurance Planning

You can determine the amount of insurance you need to protect your family through financial planning. Though most employers provide group life insurance in Nigeria, you should get a term plan (pure life insurance) for 20 or 30 years, depending on your needs. 

Let's find out the benefits of financial planning next. 

Benefits of Financial Planning


Here are the top 4 benefits of financial planning:

Higher Life Savings

Financial planning helps you manage your cash flow or savings. When you cut out expenses that are not required, your savings go up. You can also try for another job or do a second job to increase your income. 

Better Standard of Living

Financial planning helps you plan for your financial goals so you don't have to compromise your living standards. When you know the timeline of your financial goals and the amount to be invested, your living standards are higher. 

Be Prepared for Crises

Financial planning helps you create an emergency fund equivalent to six months' expenses so that your other financial goals are not disrupted. You can handle unexpected crises without financial problems. 

Financial Security for Your Family

With financial planning, you're not just able to achieve your financial goals but are also able to protect your family in case you fall severely ill.

Tools like life insurance term plans can ensure your family does have to worry about the loss of income in such cases. Further, creating a will ensure that your movable and immovable property will be transferred to your legal heirs. 

Elements of Financial Planning

Here are the key elements of financial planning

1. Goals and Objectives

The objective of every financial plan is to ensure you have SMART goals. 

2. Identifying Weaknesses

Financial planning identifies the weakness or loopholes in your current finances to help achieve your financial goals

3. Risk Management

You can lower your risk with the right insurance with financial planning.

4. Prioritising Everyday Needs

Before you invest in your long-term goals, financial planning helps you prioritize your expenses. 

5. Retirement, Education, and Special Needs

You must accumulate sufficient funds for retirement, education, and other goals with financial planning

6. Having a Budget

You can calculate your cash flow and create a budget with financial planning

7. Investment Planning

With financial planning, you know how much to invest and the performance of your portfolio. You can step up investing if required.

8. Estate Planning

Financial planning helps to pass your estate to your heirs in a tax-efficient manner. 

9. Assumptions

Financial planning is based on assumptions. These include the assumed rate of return, inflation, tax slab, and the timeline for your financial goals

Learn how to make a financial plan next. 

Financial Planning Process: How Do You Make a Financial Plan?


Here are the 5 steps for making a financial plan:

Step 1: Evaluate Your Financial Situation

Financial planning begins with your current financial situation, which includes your expenses, income, debt, investment, and savings. 

Step 2: Write Down Your Financial Objectives

Note your long-term and short-term goals, and make sure they are SMART.

Step 3: Consider Your Investment Options

Your investment options will depend on the following:

  • Asset classes available like stocks, bonds, real estate, or commodities
  • The risk tolerance category could be aggressive, moderate, or conservative

Step 4: Carry Out the Right Plan

For proper financial planning, the following factors should be noted: 

  • Timeline for your financial goals
  • Current financial position, including savings and investments

Step 5: Monitor Your Progress

Reviewing is a key aspect of financial planning to check if you are off track and the changes that need to be made. 

How Frequently Should You Review Your Financial Plan?

A financial plan is not a static document for life. It needs to be reviewed at least once a year to see if your goals are on track.

Besides, your financial plan needs a review when you go through a major life change, like getting a divorce or having children. Unless there are major changes like a promotion or marriage, a financial plan can be reviewed once a year. 

Should You Hire an Advisor to Help with Financial Planning?

There are free online financial planning tools, but hiring a personal finance advisor is still advisable. These professionals can guide you about all aspects of financial planning, like investing, retirement plans, and more. 


Now that you know what financial planning is and how important it is for your well-being, all you need to do is outline your financial goals either by yourself or by hiring a personal finance specialist. Plan today for a better tomorrow!


1. When should I start financial planning?

The earlier you start financial planning, the better since you can benefit from the power of compounding. So, the best time to start financial planning is now

2. What is the main purpose of financial planning?

The main purpose of financial planning is to help you reach your financial goals, like higher education or retirement, on time. 

3. What are the tools of financial planning?

You can find free online calculators or software that serve as tools for financial planning. These can help you calculate the amount you need for your higher education or retirement. 

4. What are the principles of financial planning?

The principles of financial planning include: 

  • Earning tax-efficient returns on your investments
  • Meeting all your financial goals on time
  • Creating an emergency fund

5. What is the first step in the financial planning process?

The first step in the financial planning process is evaluating your present financial status, including cash flows, investments, assets, and liabilities.

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