A major portion of the first quarter of our lives is all about education and learning. The end goal, of course, is to land a job. And landing that job for the first time can be euphoric. And also stressful. Any job comes with its own strings of opportunities, commitments, and challenges. After successfully surviving the first month and emerging at the other end, the reward is yet another euphoric first. The first paycheck. It is this significant increase in cash flow which calls for wealth management.
Generally, the first paycheck is spent on buying gifts for your near and dear one. The remnants are then stuck in a savings account which has probably been held in your name since you were born. While this isn’t bad, stowing a meager portion of your salary doesn’t constitute effective wealth management. Unless you adopt wealth management habits and practices, you might end up feeling that your hard-earned money is vanishing right before your eyes. So let’s first understand the concept.
What is wealth management?
In simple terms, wealth management is planning your finances with a long-term goal or multiple short-term goals. It includes taking into consideration your current financial status, day to day expenses and upcoming major expenses among other things. Wealth Management services are high-level professional services where a company helps you with financial planning from consulting you for investments to retirement planning and legal or estate planning.
How to go about wealth management and financial planning?
Know your worth: When you know your financial worth at any given point, it helps you to make sound decisions. Creating a suitable financial plan begins with knowing your assets and liabilities and helps you determine your financial standing. Charting your financial standing will help you realize whether you’re in debt or if you’re headed in the direction you want.
Don’t spend more than you earn: It’s kind of the most obvious advice anyone would give you. You should always adopt a cautious approach when spending your salary. If you don’t keep a track of how much you’re spending, you might end up with nothing in your hand at the end of the month. Jot down your fixed expenses and allot a budget for everything else.
Invest (wisely): Of course, a penny saved is a penny earned. It’ even better when the saved money can create more wealth. However, it can be difficult to pick from the multiple investment schemes, products, and instruments available in the market. So, you should conduct a thorough research before Investing your Money. Don’t invest without considering your goals and risk profile. Also, avoid investing in products which seem too complex for you to understand.
Be Insured: Life is uncertain. You can never know what may be around the corner – a financial or a medical emergency. Hence, it is imperative to have the appropriate insurance covers in place. Firstly, you should take out a life insurance policy that covers yourself and your family. Choose insurance plans which double up as investments or the ones which help you save taxes. There are also certain policies such as unit-linked insurance policies (ULIPs) that can help you to create wealth.
Plan taxes: Taxes are a part and parcel of the working life. Different incomes are taxed differently and obviously, have different rules and regulations. Often, a considerable portion of your income is cut away by way of taxes which can be a downer. Hence, it is always wise to plan your taxes ahead. There are numerous deductions available under various sections of the Income Tax Act, 1861. Availing these will help you save money. Investments are a good way of saving up on taxes while creating wealth.
Plan for your retirement: Effective financial planning also factors in retirement. Unless your firm provides for a pension after retirement, you may have to start setting up your retirement corpus well in advance. Invest in a way which provides for a regular source of income coupled with tax benefits.
Adopting Wealth Management and financial planning habits right from the beginning turns it into a disciplined habit for all the years to come. Time and discipline are the keys to a successful and wealthy future. Remember, it is the early bird that gets the worm!