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Understanding Financial Planning & Wealth Management
Table of Content
What is Financial Planning?
Financial planning is a strategy for saving and investing for a robust monetary future. It involves setting financial goals, assessing the current economic status, creating a budget, building an emergency fund, investing for the future, and reviewing and readjusting. Planning leads you in the right direction to achieve your targets within a given time.
Debt and risk management are also integral parts of financial planning. Financial planning helps you achieve your short-term and long-term financial goals through assets like mutual funds, stocks, term insurance plans, fixed deposits, pension plans, etc. Financial management enables you to explore tax-efficient saving plans and reduce your overall tax liability.
Key Instruments of Financial Planning
Wealth management and financial planning complement each other. Only when your financial planning is in place can you create wealth and then work towards managing it. Planning can be a tedious and daunting task. A proper strategy can simplify the ordeal. Here are some key instruments of financial planning to focus on for seamless finance management.
Budgeting
With budgeting, you understand where your money is being spent and identify the unnecessary expenses. Record your expenditures month wise. Categorise the list into needs and wants. Cut down on wants as much as possible to ensure there is room in your income for savings. Creating a practical budget requires recording your expenses daily and making changes wherever necessary to enhance the disposable income, especially, if you plan to buy a car, home, etc.
Emergency Fund
Allocating funds from your income for the what-if scenario in your life spares you from a financial crisis in case of emergencies. It provides financial security during challenging moments and you can avoid resorting to loans to tackle the situation.
Insurance
Insurance planning is essential for smart financial planning. It secures your family financial future. The death benefit from the plan helps cover mortgage loans, education expenses, and monthly expenses.
Debt Management
Debt management is an integral part of finance management and wealth management. High-interest debts like credit card outstandings, personal loans, etc., strain your budget and hinder your progress towards achieving financial goals. Aim at clearing off these costly loans. If you do not understand how to go about it, seek professional advice to realise how much funds you need to allocate in your monthly budget towards clearing the debts.
Retirement Planning
Retirement planning should top the list of financial goals. Invest in retirement plans early in life to leverage the power of compounding to create a huge corpus for peace of mind and financial independence post-retirement and to fulfil your long-term financial goals. Low-risk investments like the National Pension Scheme, EPF, PPF, etc., provide guaranteed returns with capital protection.
What is Wealth Management?
Financial planning and wealth management go hand in hand. Financial management helps wealth creation. Financial wealth management protects the wealth and grows it further over a period using financial products and services. Wealth management is a financial advisory service that helps create more wealth with the existing wealth using prudent investment techniques. It improves your financial health through asset allocation. The financial products used in wealth management are stocks, mutual funds, gold, real estate etc. Estate management, tax planning, and risk management are parts of wealth management.
Key Instruments of Wealth Management
The following are the key instruments of financial wealth management:
Investments
Investment planning is the basic element of wealth management financial planning. It entails setting financial goals and creating investment strategies around the goals to achieve them. With so many investment options available to suit the risk tolerance of every individual, achieving the goals is seamless. The options include stocks, mutual funds, insurance, pension plans etc.
Tax Planning
Tax planning is a money-saving aspect of financial planning wealth management. It is a proactive approach to maximise wealth and secure your financial future. Investing in tax-efficient assets increases disposable income which can be further utilised to earn returns. With efficient tax planning, you will have more money working for you.
Estate Planning
Estate planning is an essential element to secure your family financially. It ensures the distribution of the assets harmoniously among your loved ones leaving little scope for disputes. It also reduces the taxes on the financial legacy you leave behind.
Education Planning
The education costs are worrisome for most parents. They are always sceptical about fulfilling their child’s educational goals. Here is where financial planning wealth management comes into the picture. Prudent education planning through early investment in child-oriented plans like child insurance plans helps in fulfilling your children’s education objectives.
Retirement Planning
Evaluating the required retirement income is an important aspect of retirement planning. Deploying a part of your resources towards a lucrative savings plan is essential to attain the desired income stream. Planning for retirement can be done any time before retiring, but investing early will reduce the burden on your budget and the power of compounding will help build a sufficient corpus. Including a critical illness insurance plan will further stabilise your retirement planning by providing funds for quality treatment.
Financial Planning vs Wealth Management: Main Differences
Financial planning and wealth management seem similar but diverse in many ways. The main differences between the two are:
Parameters |
Financial Planning |
Wealth Management |
Periodicity |
It is either done at different life stages or once or twice a year |
It is an ongoing process and remains throughout the wealth-creation journey. |
Aligns |
With goals |
Opportunities |
Applicable to |
Every individual |
Rich businessmen, High Networth Individuals, etc. |
Goal |
Control finances, save, and invest to meet financial goals. |
Safeguarding and growing the existing wealth with prudent investment strategies |
Constitutes |
Managing cash inflow and outflow, planning investments, building emergency funds, tax planning, and retirement planning |
Risk and wealth management, estate planning, asset allocation, growth strategy, and preservation of wealth. |
Type of management |
Indirect |
Direct |
Decisions based on |
Financial goals, time horizon, and risk tolerance |
Investment portfolio |
Pays attention to |
Creating a road map for financial security |
Instant investment strategy |
Key Factors to Consider When Choosing a Financial Planner or Wealth Manager
For result-oriented financial planning and wealth management, it is important to seek the advice of the right financial manager or wealth manager. Consider the following factors while choosing a financial planner or a wealth manager.
Qualification is important to draw a concrete financial plan and manage your wealth diligently. The financial or wealth manager should hold a degree in finance or any other related field. He/she should also have a minimum of a decade of experience in financial planning wealth management.
Experience intensifies wealth management financial planning. The financial and wealth manager will be better at analysing data, understanding market volatility, identifying opportunities, and format lucrative investment strategies.
Fees
Understand the fee structure of the financial or wealth manager. Some insist on annual fees while others settle for a percentage of the assets to be managed. It could even be a flat rate or an hourly rate. Check the fees before hiring their services to avoid surprises.
Reputation
To ensure that your financial planning and wealth management are in the right hands, the financial or wealth manager should be trustworthy. Check online reviews and make thorough enquiries about them in the market.
Why Both Matter: Two Sides of the Same Coin
Financial planning and wealth management work in tandem. They both have equal importance. Financial planning establishes financial protection by managing the finances, saving, and investing for the future. While wealth management helps preserve the wealth created through financial planning and grow it further for robust financial stability.
Conclusion
Financial planning and wealth management have their roles to play in a financial journey. Financial planning focuses on asset accumulation whereas wealth management emphasises asset allocation. Financial planning creates wealth and wealth management protects and grows the existing wealth. Understanding the key differences between the two is essential to make informed decisions for your monetary future.
FAQs on Financial Planning and Wealth Management
Q. What is the difference between wealth management and financial management?
Financial management creates a roadmap for managing finances to achieve your financial goals through informed investment decisions. Wealth management involves asset management and allocation, diversifying portfolios, tax planning, etc. It helps grow your wealth by leaps and bounds by guiding you to invest funds in assets that align with your goals and risk tolerance.
Q. What is finance and wealth management?
Financial management helps manage income and expenses to create disposable income to save and invest for the future. Planning investments, tracking expenses, and adjusting portfolios periodically are parts of financial management. Wealth management is about managing your assets to help accomplish your goals.
Q. When should I consult a financial planner or wealth manager?
You should consult a financial planner or wealth manager when you need assistance to manage your finances at different life stages. You also can consult a financial planner for an opinion about your funds manager’s investment skills, to review your investments, tax planning, and investment performance, or when you need overall management of your funds.
Q. How does tax planning fit into financial planning?
Tax planning involves managing finances for optimal tax benefits by exploring tax-efficient investment opportunities. It entails reviewing your income, expenditures and investments to adjust the portfolio and make it more tax-saving.
Q. What are the key components of financial planning?
The key components of financial planning are goal-setting, understanding the current funds situation, creating a budget, building an emergency fund, investing for the future, and reviewing and readjusting the portfolio.
Related Articles:
- Wealth Management - Definition and Meaning
- What is Financial Planning? Definition, Benefits and Purpose
- Financial New Year Resolutions: Top Strategies for Success in 2024
- Financial Planning: Importance of Financial Planning
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Francis Rodrigues
Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.
Written By:
Vishal Subharwal
Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.
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HDFC Life
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This material has been prepared for information purposes only, should not be relied on for financial advice. You should consult your own financial consultant for any financial matters.
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