10-Step Process to Prepare an Effective Wealth Management Plan

A common desire every individual is to become rich or richer than the current financial status. To become rich or fulfill the future financial requirement you need a proper and effective road map. You may do two things. First, earn more or increase your earning by creating more income streams. The second is to manage your current finances to create wealth in the near future. In order to manage your finances, you need to create a perfect road map to meet your desired corpus. In order to make a perfect Wealth Management you need to consider the following 10 points.

  • Know your worth.
  • Spend less than your income.
  • Be safe, be insured.
  • Retirement Planning.
  • Plan for future obligations.
  • Plan your taxes.
  • Invest wisely across various asset classes.
  • Monitor your investment.
  • Stay invested with a long term view.
  • Create multiple sources of Income.

Know your worth

It means calculating your portfolio value i.e. property, assets such as gold, bullion, etc. and their valuations. You should think about your earning and the possibility of an increase in your earning. You can calculate the current value of all the possessing from land, house, jewellery to any other valuable things. Then take into account the future liabilities that will come in the way. You cannot predict the future and any emergency situation that may arise in your life. But you can hold an assumption of your possible responsibilities. Whatever your present wealth can give you a real snapshot of your financial situation. According to the real worth of your holdings, you can determine your position and then use your savings to build a better future.

Spend less than your income

This is an age-old proverb, yet relevant at all times. You should use your hard-earned money wisely. Buy those things that you really need. You should not spend your money on simply pleasure or entertainment purposes. Always set a budget for your monthly expenditures. Try to save at least 20% of your income. In accordance with the 50/30/20 rule of money, one individual may spend 50% on needs, 30% on wants and the rest 20% on saving.

wealth Management Quotes

Be insured, Be safe

In order to get success in wealth management, any individual is supposed to take an insurance policy to secure his family in case of his uncertain demise. The most important thing is you should buy a term insurance plan at an early age. Whenever you start earning you should take a term plan. The earlier you take a term plan, the lesser the premium will be for the term plan.

term insurance premium

Suppose, you buy a term plan at the age of 25 and you want to continue this plan till the age of 60 years. So, the duration of the term plan is 35 years. You can easily avail up to Rs. 1 crore as your life insurance for just Rs. 7100/- yearly. But if you delay for 5 years, you will have to pay a yearly premium of Rs. 8300/-. Again if you buy a term insurance plan at the age of 35 years then you need to pay Rs. 10,200/- per year for an assured sum of Rs. 1 Crore for the upcoming 25 years.

In addition to the term plan,

One individual should buy a health insurance policy. Health insurance or Mediclaim Policy is an insurance that covers any kind of health hazards or the risk of the health of a person wholly or partially. It bears the medical expenses of a person that is incurred. You can opt for health insurance for any kind of uncertain or accidental health problems. To get the health insurance you need to select a lump sum amount and on the basis of it, you are to pay a premium either monthly or quarterly or yearly basis.

The insurance covers the medical expenses when you suffer from any health hazards and it helps to carry out the investment without worry. In other words, the health insurance policy will ensure funds on the physical ailments of you as well as your family. This medical insurance policy diminishes the heavy medical bills.

Retirement Planning

One of the common misconceptions among the masses is that after getting a job most people think that they are too young to plan for retirement. Early retirement planning will secure financial needs with ease after their retirement. Let’s make it clear with the following example.

Suppose you are of 30 years and your yearly expenditure is Rs. 2.5 Lakh now.

So, your annual expenditure after 30 years [at the age of 60 years] will be Rs. 19 Lakh assuming a 7% inflation rate.

So, in order to lead a happy retirement life after 60 years of age and if you live at least 80 years, then you will need to manage a corpus of [Rs. 19 Lakh × 20 years = Rs. 3.8 Crore].

wealth management

If you start investing in any equity-oriented mutual fund schemes at the age of 30 years with just Rs. 13, 000/- per month then you will get Rs. 4 Crore when you are 60 assuming 12% CAGR. If you are late by 5 years i.e., start investment at the age of 35, then you need to invest Rs. 24000/- per month to get the same corpus at the age of 60 years. Again, if you start investing at the age of 40 years then you need to invest Rs. 44000/- per month.

Plan for future obligations

Suppose you stay with your family in any rented house and you have got one son and one daughter. So, in order to meet the future obligations like to own a house, the education cost of son and daughter, the marriage cost of daughter you need early planning. Let’s understand it.

Total cost for the higher education of your daughter and son, let’s say after 15 years after they passed 10th standard, = Rs. 50 Lakh.

Marriage cost of your daughter including inflation = Rs. 30 Lakh.

Amount needed to buy a house after 20 years including inflation = Rs. 2 Crore.

In order to meet future obligations, you need early planning. Let’s discuss,

To meet the education cost

If you start investing in any equity-oriented mutual fund for the period of the next 15 years with just Rs. 4000/- per month then you will get Rs. 50 lakh after 15 years assuming 15% CAGR.

To meet the Marriage cost

If you start investing in any equity-oriented mutual fund schemes for the period of the next 20 years with just Rs. 2000/- per month then you will get Rs. 30 Lakh after 20 years assuming 15% CAGR.

Fund to buy a house

If you start investing in any equity-oriented mutual fund schemes with just Rs. 7000/- per month then you will get Rs. 1 Crore after a span of 20 years assuming 15% CAGR.

Invest wisely across various asset class

Now, you need to consider the perfect asset allocation strategy and investment route to meet the above-mentioned purposes such as retirement corpus, education cost of son & daughter, Marriage cost of the daughter, buying a home.

The asset allocation in different buckets enables you to manage or diversify the risk. Equity is such an asset class that has some moderate risk than the other asset class like the bond, debt securities. But historically, equity yields more returns over a long period of time. So, what will be your asset allocation irrespective of your age? A generally accepted trick is that you have to subtract your age from 100 to determine the percentage of your investment to the equity asset class.

Asset allocation strategy

Let’s illustrate,

Total value = 100

Your age = 30.

So, you may invest [100-30] = 70% of your fund or capital in equities or stock market. The remaining 30% of your fund can be divided between corporate bonds and debt securities. If your risk appetite is high, for better returns over a long period of time you can invest your 90% investment into equity or stock market before or on attaining the age of 30. Since you are young you can afford to wait and see for a long time. Therefore, any correction in the stock market may be a buying opportunity. Basically, the equity asset class has a record to yield more returns than any other asset class i.e., debt instruments over a long period of time.

Asset allocation strategy

Now you should invest your surplus in those fields that are easy to understand for you. Don’t indulge in those sectors and invest which are complex and you do not understand. You need to gather knowledge in order to get started in the stock market either via direct equity or mutual fund.

Finally, there are various investment options that offer a higher return and can generate extra income for you. You need to understand the risk factors associated with each asset class. You must invest in accordance with your time horizon and risk appetite before start investing in those instruments or asset classes. Any individual can also take the advice of a financial planner for your wealth management.

Monitor your investment

Besides having patience you need to monitor or check your investment portfolio at least once in a year. You cannot just close your eyes and remain to relax after making an investment. You should check the status of your investment once in a month. Let’s assume after 3 long years you notice that one of your mutual funds does not cope with the market and can’t deliver a better return than the benchmark index then you should invest anywhere else.

Stay invested with a long term view

After making your first investment you need to stay invested in the long term if you are investing in the equity asset class. This is because to earn compound interest. Needless to say, the power of compounding enables an investor to earn interest on interest.

Now, to enable compounding of your money you need to do the following 3 things.

Long-term Horizon

Just look at the following graph.

wealth management

If you make a lump sum investment of Rs. 1 lakh at once and allow the money to compound at the rate of 15%, then you will get-

  • 4 lakh after 10 years,
  • 16 lakh after 20 years,
  • 66 lakh after 30 years.

Start Early

To make perfect use of a compounding effect, you need to start investing as early as possible. Ace investor Warren Buffet started investment when he was 11 years of age. To make it clear concentrate on the graph.

wealth management

If you start investing at the age of 25 years with just Rs. 5000/- per month then you will get Rs. 5.7 Crore when you are 60 assuming 15% CAGR. If you are late by 5 years i.e., start investment at the age of 30, then you need to invest Rs. 10000/- per month to get the same corpus at the age of 60 years. Again, if you start investing at the age of 35 years then you need to invest Rs. 21000/- per month.

Start with a little amount and don’t forget to increase whenever possible

To get the benefit of compound interest you may start with a little amount of Rs. 1000/-. You may then increase the amount of SIP every year with a little extension of 5%. Let’s understand it with the following graph.

step up sip

As shown in the graph if you have made a SIP of Rs. 5000/- per month for the upcoming 35 years, then you will get Rs. 5.7 crore. If you increase the SIP amount by 5% every year then you will get Rs. 8.2 crore after 35 years. So, step up your SIP amount as possible.

To conclude this, you need to gain the compounding interest.

  • Long-term investment horizon.
  • Start as early as you can.
  • Invest consistently and step up i.e., increase your contribution.

Plan your taxes

If your income is taxable you should calculate your tax liability at the starting of a year. You may consider income tax as an expenditure or you may take your income after deducting your tax. Govt. allows tax rebate under 80C to 80U Sections of the Income Tax Act. The most efficient way to take advantage of Section 80C is to invest in Equity Linked Savings Scheme (ELSS). It has the shortest lock-in period as compared to all the other tax-saving options available under Section 80C. In this way, you can save taxes up to Rs. 45000/- and avail a deduction up to Rs 1.5 lakh. Additionally, the ELSS is a diversified equity fund that helps you to achieve your financial goals via investment in the equity market.

Create Multiple Sources of Income

According to Warren Buffet, apart from your salary income and investment, you should create various income streams.

quotes of getting rich

But How? Well, this is a Million Dollar Question.

Almost everyone has a hobby of his own. This hobby can be transformed into an occupation. If you have knowledge about anything you can share that information via blogging. So you can create a blog or website. If you are interested in how you or any person can earn money by blogging just click on the link Make Money Blogging. Here I have mentioned blogging as a tool to create a source of income apart from your job or profession because of,

Quotes on Earning Money

Why Blogging?

Almost everyone has a hobby of his own. This hobby can be transformed into an occupation. If you have knowledge about anything you can share that information via blogging. So you can create a blog or website. I had a passion for the stock market, investment, personal finance. So, I was looking for a platform to express my thoughts and experience. So, I started this blog. Like me, you should select your interest and think carefully about what you can write about that field. After selection of niche, buy a domain and web host to start up a blog which is now much easier.

How to Make a Blog

Now, you can make money by blogging, by making use of the following options.

  • Make money through affiliate marketing.
  • Display ads on your website or blog.
  • Write sponsored Blog Post.
  • Write a review of any specific product or services.
  • Offer your own digital products such as e-book etc.
  • Offer your own services in which field you have expertise.
  • Create a membership site by making use of MemberPress, LearnDash.
  • Accept donations like other websites such as Wikipedia.

There are many other occupations you can choose. It is up to you what you choose to increase your income. You may do anything to get some earning. For advice, you can read our article 100+business ideas with a small investment and Top 20 ‘Proven Legit’ Ways to Make Money Blogging.

Hope this will help you to manage wealth management. If you have found this post helpful feel free to comment so that we have a discussion. If you have found this post helpful do share this post with your loved ones.

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