Chances are you have a rough idea that you need a will, you file your taxes, and you maybe keep an eye on your investments if you have any. What you likely don’t know though is that this haphazard approach to wealth planning is probably not helping you actually grow your wealth.
WEALTH PLANNING. You need to be doing it. You need to understand it.
In this blog post I’m going to walk you through the wealth planning process so you have a better understanding of the different areas that you need to combine in order to properly plan for your wealth.
What is Wealth Planning
Wealth planning is a two part process:
(1) Planning to use your income to grow your net worth; and
(2) Planning for how to protect that wealth throughout your life and then pass it on to your family.
Wealth Planning involves more than just figuring out how much money you need to retire. It ensures you have enough insurance to cover certain life scenarios, notifies you to tax planning to ensure you are structuring your affairs in a tax effective manner, and it examines disability planning to ensure everything is in order were you to become disabled.
By creating a plan that encompasses all of these factors you end up with your affairs being structured in a way that permits you to accumulate wealth and share that wealth with those important to you over the course of your lifetime.
There is nothing quick or fancy about it, but it works.
The Wealth Planning Process
There are a number of steps that an individual has to go through when engaging in the wealth planning process. These steps are as follows:
(1) Identifying your Assets and Liabilities: This is the information gathering stage. In order to know where you’re going you need to know where you’re starting. In this stage you need to have a clear understanding of everything you own, what its cost was, what it’s worth today, and who the beneficiaries are on any accounts. You are creating your own personal balance sheet here. I’ve created a nifty spreadsheet to help you with that which you can download from the resource library here.
(2) Establish Objectives: This involves identifying what you want to achieve from the wealth planning process. Is it to pass on money to the next generation? Is it to donate to charity? Is it to structure your affairs in the most tax efficient way possible? There are lots of different objective to consider. Get a list of the most common wealth planning objective here.
(3) Strategy Identification: Once you’ve identified your assets and liabilities you need to identify which strategies will help you achieve your objectives. There are tons of strategies out there to help you with this. I’ll be sharing lots of different strategies across my blog. Stay tuned for new strategies being posted regularly.
(4) Completion of the Wealth Plan Document: To keep everything organized a proper written document is the best way to keep everything together.
(5) Implementation: Once the strategies are identified, you have to actually implement the plan. This might involve having a will or other legal documents prepared.
(6) Review: This is one of the most critical steps in the entire process. Your plan should be reviewed annually. I recommend reviewing it right after tax time in May. Changes likely will not be required unless a major life event has occurred, but it is important to always stay on top of it and it’s fun checking in to see weather your wealth is growing. Set a reminder on your phone now – MAY 1 – REVIEW WEALTH PLAN. Make the reminder repeat annually.
Different Aspects of Wealth Planning
The wealth planning process encompasses a number of key areas:
.(1) Personal Finance: This involves looking at what income you have coming in and how you can grow that income long term through investments. It also involves establishing financial goals, such as retirement, or a house purchase, and calculating what you will need to do in order to reach that goal.
(2) Estate Planning: This aspect involves planning for how your wealth will pass to the next generation. This coupled with your personal finance planning are the two key components of your personal wealth planning.
(3) Taxation: Taxation will impact both personal finance and estate planning. You will want to be aware of tax rules that apply to your situation so that you are structuring your affairs properly and minimizing the amount of taxes payable because the less tax you pay the more money you will have available for personal use.
(4) Insurance Planning: Insurance is an incredibly diverse area of wealth planning. Most commonly it’s used to protect your financial future in the event you become disabled or pass away, but it can also be used for estate equalization or funding liabilities. It’s a very important part of wealth planning.
(5) Disability Planning: Many individuals will become either temporarily or permanently disabled at some point in their lives. We tend to plan for death, but fail to plan for disability. By properly planning for a disability you ensure that your affairs will be properly taken care of in the event you are unable to do so yourself and you aid your family from costly court proceedings they may need to undertake in order to be able to help you in the event you become disabled.
Why you need to have a wealth plan
It may seem like a lot goes into a wealth plan, and it maybe doesn’t seem like it’s worth putting together. A proper wealth plan, however, will become one of the most important guiding documents of your life.
Taking a haphazard approach to your planning may end in missed opportunities, failure to achieve goals, losing money when something you failed to plan for materializes; or family conflicts.
A proper wealth plan is key to having your life well organized and put together. Unfortunately, a proper wealth plan isn’t easy to obtain unless you have ample money to invest. This is why I’ve created wealthified. With the help of the info that has and will be published on this site you can put together a wealth plan and take control of your future.
Conclusion
Now that you understand the wealth planning process and why you need a wealth plan you can get started creating your own.
Do you feel that a wealth plan is necessary? Do you already have one?