The Financial Planning Pyramid

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The Financial Planning Pyramid

This is the third post in the Financial Planning Basics series, if you have not read the previous post you can find it here – ‘What is Financial Planning?’.

The financial pyramid is the main part of the Financial Planning Process. The planning process always starts with a base plan which is a written Personal Financial Plan. Obviously, you should enlist the help of a Certified Financial Planner to help do this correctly.

The 5 main sections of the pyramid are outlined below:

  1. Protection
  2. Regular Savings
  3. Growth and Diversification
  4. Speculation
  5. Wealth Distribution
Financial planning pyramid
Financial planning pyramid
As you can see from the picture above, the personal financial planning pyramid relies on having a solid foundation of protection on which the rest of the pyramid is set up.

Income Protection

Protection, or more appropriately ‘Income Protection’, revolves around the concept of replacing income in case of unplanned events happening to you. So income replacement is nothing but insurance or you can say that ‘Insurance is nothing but income replacement’.

Medical Insurance

Medical insurance is meant to take care of immediate medical expenses for any medical condition no matter how big or small. If you don’t have medical insurance, you can end up spending a lot of money on expensive treatments.

Critical Illness Insurance

The next step after medical insurance is to take care of income replacement in case of major illnesses such as ‘Heart Attacks’, ‘Cancer’, ‘Brain tumors’, ‘Multiple Sclerosis’, …etc. Generally, critical illness benefits in most policies pay out a lump sum when any of the qualifying illnesses occur within the term of the insurance policy.

Disability Insurance

As the name suggests, disability insurance replaces your income in case of disability resulting from any type of accident.

Life Insurance

Finally, Life insurance replaces income lost due to the death of the bread-winner. Consider how many people will suffer from your death, how much they would need every month and what would be the consequences of not having adequate insurance?


Wills protect your income from falling into the wrong hands or not being distributed correctly in case of your demise.

Debt Reduction

Debt reduction is the most basic, and most important component of the Financial Planning Pyramid. If you reduce your debts by planning your spending habits, you are in fact protecting your income from loss and making it available to achieve your financial goals.

If your spending is out of control, start by taking stock of where your money is being spent. The simplest way to do this is to use the personal balance sheet I have created for you.


Regular Savings

The next step in the pyramid is putting money aside towards your planned commitments. Planned commitments could be any of the following.

Emergency Fund

Emergencies can happen at any time. The only way to survive without problems is to be prepared. In financial terms it means that you need to put aside at least six months of income for the rainy day, the day when you most need it in case of emergencies.

Children’s Education planning

Putting aside money for your child’s higher education fees is the best gift parents can give their children. Only proper planning can ensure that their future is secure.

Retirement planning

Financial independence during retirement is very important if you do not want to depend on someone else for your expense during the twilight years. Saving money now, to have a retirement income is the only way forward.

Home ownership planning

Buying their own house to live in is every person’s dream at some point during their life. Like other planned goals this goal can also be achieved by regular savings.

Lifetime aspirations

Life time aspirations like traveling across the world, buying the dream car, …etc also need proper planning and regular savings.


Growth and Diversification

This phase of financial planning should only be started once the first two phases have been taken care of. Investing in stocks, bonds, mutual funds and ETFs require proper research and slightly higher understanding of how the markets and different asset classes work.

Proper research and patience is the key to succeeding in this phase. This phase is designed to maximize the growth of disposable income through taking calculated risks.



Speculation is not for the weak-hearted and generally also known as the wealth-accumulation phase of financial planning. You only think about speculation when you can afford to lose the money at stake and not be affected financially.

Different ways of getting into the speculation phase of investing are by investing into high-risk asset classes such as ‘Futures’, ‘Commodities’, ‘Forex’ and ‘Real Estate’. Yes !!!, Real estate is a high risk asset class, because mostly the amounts at stake are high and almost anything can affect the property value.



Distribution of the wealth built-up during the lifetime is the final stage of financial planning. This can be achieved through proper estate planning and succession planning.


What next?

The next step in the financial planning process is called Budgeting and Prioritizing.

About the author

Amit is an Independent Financial Advisor, based in Dubai since 1997. He is part of the prestigious ‘Million Dollar Round Table’ (MDRT), which is an elite club of the best financial advisors worldwide.

He has authored the ‘6-Step Financial Success Guide’, and the book ‘Creating, Preserving, Distributing Wealth’.

He helps business owners and professionals ‘Create A Second Income’ through investments.

Amit Mitbawkar

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