Why financial planning is not only for the rich

It can potentially grow your money and assets over time and help build a consistent flow of income

Wealth management involves several stages of planning spanning an individual’s lifetime – it’s not a quick money-making shortcut. Getty Images

If these uncertain times have taught us anything about money, it is two things: you never know how much you may end up needing if a worst-case situation arises, such as losing your job, and that it’s never too early to start focusing on building your wealth. The latter can be a means to tackling the former.

As a financial adviser to many who have reaped the benefits of starting wealth management sooner rather than later, let me tell you a secret. Wealth management isn’t just about intelligently managing the wealth you’ve built – that’s only the second part of it – the first is wealth building.

There’s a popular misconception that wealth and financial planning is only for the rich; it’s not. The truth is that it is a path for anyone who actively aspires to build and gain wealth.

Wealth management involves several stages of planning that span an individual’s lifetime – it’s not a quick money-making shortcut. It is a way to generate and secure more wealth through financial planning practices and habits that one needs to continue to follow.

There are some basic stages of financial planning that apply to everyone. If you’re wondering how to start planning your finances to ensure higher savings and smarter investments, here are some basics you should keep in mind.

The first step towards wealth management begins with self-awareness 

Self-awareness is about understanding your own needs, lifestyle, risk habits and everything else that makes you who you are. Don’t lie to yourself or be hesitant in admitting expenses that you think you’re better off without.

It is vital to identify your financial goals correctly

Any objective expressed in or based upon money is a financial goal, no matter how big or small. These can be more specific, like owning a car, getting a house, travelling around the world, philanthropic endeavours or even starting a new hobby that requires some initial investment such as photography.

Wealth management and financial planning help build a consistent flow of income

Keep in mind that financial planning is not only about you; it is also about your family and future generations. Making a change in a few spending and budgeting habits can go a long way towards building wealth.

Identify your necessities and spend only as much as you need 

Find out what expenses can be cut down. That money can be put to better use – to help you make more money.

Automate your savings when you receive your salary

Some banks offer automated transfers that allow you to transfer a portion of your salary towards savings as soon as you receive it.

Try to force yourself to start saving

Save at least 20 per cent of your income and use it to purchase insurance or make investments.

Monitor your spending habits

Cut down on unnecessary luxuries and reduce your credit card usage.

Strategy building

You need a strategy that involves concrete ways to manage personal finances to achieve your financial goals.

Save at least 20 per cent of your income and use it to purchase insurance or make investments

Build as much guaranteed income as possible

At the same time, judiciously use variable income to combat external factors such as inflation and an increase in living costs.

Understand the different financial solutions available and identify what you need

Insurance is more important than you may think and can make a difference, especially during health crises, to estate planning and offers asset protection during calamities and accidents.

Perform regular check-ups 

A financial strategy needs to be upgraded from time to time, which is why it is imperative to revisit your financial plans regularly.

Plan your succession

Effective wealth management isn't just about planning your finances during your life; it also involves planning your succession, such as creating a sustainable retirement, children's education or a sizeable foreseeable expense, and estate planning.

Plan for retirement

The ultimate goal of every financial plan is to be financially independent. Some people are forced to retire due to illness or accident. One needs to prepare for involuntary retirement, keeping in mind that it can happen unexpectedly.

Start creating saving goals

They allow you to be more focused when it comes to saving money.

Financial planning provides you with some peace of mind regarding the future. It helps you retire comfortably after years of work and gives you financial independence early on. It even opens the door for early retirement.

Tremendous progress is being made in digitising wealth management, from covering protection planning and retirement planning to overall wealth building. One simply needs to get started.

No matter how much (or how little) wealth you have, make a plan to protect, grow and ensure the wealth you accumulate can build a flow of consistent income for your future and your future generations as well.

Dr Sanjay Tolani is chief executive and managing director of multi-family advisory firm Goodwill World.