Many individuals find it difficult to manage their wealth after earning a windfall gain or sudden inheritance. Managing your wealth wisely becomes easier when you have a personal plan to follow. This plan acts as a blueprint to help you navigate through various financial complexities. Your personal wealth management covers everything from investments, asset allocation, taxes, and insurance to your retirement plan and succession desires. But creating a personal wealth management plan requires some time and effort. This article outlines the steps on how you can go about drafting a personal wealth management plan.
Steps to create a personal wealth management plan
Step 1: Assess your current financial situation
To draft a personal wealth management plan, you need to assess your current financial standing. This means taking stock of your assets like savings, investments, and properties to calculate your net worth. It also means accounting for your liabilities like ongoing loan payments, mortgage, and credit card debt. Understanding your current financial standing will help you with cash flow management, ensuring a strong base for the next steps of your wealth management plan.
Step 2: Set clear and definite financial goals
Outlining clear, definite, and time-bound financial goals is a crucial step in your wealth management plan. Ask yourself why wealth management is important for you. You may be drafting a wealth management plan to secure a certain retirement corpus, safeguard your children’s education, or simply to preserve wealth for future generations. Understanding your financial goals will help you draft strategies that align with the same.
Step 3: Review your risk tolerance
Take time to assess your risk appetite. Assessing your risk tolerance will help you ascertain the right types of investments and assets.
Step 4: Build a diversified investment portfolio
Formulate an investment plan based on your personal milestones, long-term goals, time horizon, and risk appetite. Diversify your portfolio by including a mix of various asset classes like equities, bonds, NBFC FDs, real estate, and mutual funds to manage investment risks and optimize returns. Remember to plan ahead and make retirement-specific investments. You can find a range of retirement plans, pension plans, and more on various online marketplaces catering to retirement planning needs.
Step 5: Plan for taxes and insurance
Next, you should incorporate tax and insurance planning into your personal wealth management plan. This means gaining a thorough understanding of various tax laws, deductions, and exemptions. Based on these insights, you can pick various tax-saving investment instruments like PPF and ELSS to help grow your wealth, while lowering your tax payments. You can also consult with a tax advisor to make your wealth management plan tax optimized. Apart from that, you also need to focus on insuring your wealth corpus against possible losses due to unexpected emergencies like ill health. To this end, you need to identify your insurance needs and secure adequate life and health insurance coverage.
Step 6: Draft a will for smooth asset distribution
Planning what happens to your wealth after your demise is a critical part of drafting a personal wealth management plan. If you want your assets to be distributed among beneficiaries as you intended, then it is imperative to draw-up a will. To simplify estate planning, you can consult with legal professionals and draft the required documents like wills and power of attorneys.
Step 7: Monitor and adjust your plan periodically
Once you have drafted your personal wealth management plan, you must review and adjust it periodically. Apart from monitoring the performance of your investments, you should also track the progress towards your set financial goals. Moreover, you should adequately revise your plan post a major life event like marriage, becoming a parent, or career change. Remember that it is essential to adjust your plan to suit changing markets as well as progressing life stages.
Conclusion
Creating a personal wealth management plan can help you effectively navigate various financial complexities. To draft a plan, you need to assess your financial situation, set goals, invest according to your risk tolerance and objectives, plan for taxes and insurance, and review your plan periodically. If you find it challenging to draw up a personal wealth management plan, it’s always best to consult a trained advisor who can help you ideate a customized approach.
