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The importance of wealth planning and management

6 April 2022
4 minute read
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Your wealth plan, also called a financial plan, helps you spend and save money so you can achieve your financial goals and build wealth! Without a personal wealth plan, you spend money on things you don’t need or want, or worse – spend money you don’t have and land up in debt! Your plan will guide you as you build, manage, use and preserve your wealth. Let us take a closer look at why wealth planning and management are important.

The importance of financial planning

Wealth – no matter how much or how little you have - needs to be managed. Without wealth planning, you won’t be able to keep track of your finances, pay living expenses and debt, and save and invest wisely to build wealth and generational wealth for your family.

How do you manage your wealth?

The first step is to set financial goals, such as saving Rxx for retirement. Then, you need to draw up a financial plan, which is your guide to help you achieve your financial goals.

For example, let’s say you want to save money for a deposit (R50 000) on a new house in two years. Your plan will include how much to save each month and where to save so you can achieve your goal.

Your wealth plan, or financial plan, needs to include guidelines for:

  • Building wealth by saving and investing
  • Managing your wealth with a budget
  • Preserving wealth with multi generational wealth planning that makes sure your wealth lasts for many generations

These are the most important elements of a financial plan. A financial adviser will help you create a more detailed plan, choose the right savings and investment products, and check in on your progress every year.

Building wealth
You need a wealth building mindset to help you grow wealth. You also need to put as much as you can (even a small amount makes a difference) towards wealth building activities that include investing in:

  • Education, for example sending your children to a good school as well as learning a new skill so you can improve your earning potential
  • Property, a family home, and/or properties you can rent and earn income from
  • Funds such as unit trusts and exchange traded funds (ETFs), or shares listed on the JSE
  • A side hustle, in addition to your day job, to earn an extra income
  • A small business that you can grow into a family business
  • Life insurance so that if something happens to you, your family can pay their living expenses
  • Getting a financial education. For example, take a financial education course from Truth About Money where you will learn how to spend money wisely, get out of debt, save and how to invest to grow your wealth!

Finding money to do this can be difficult, but if you follow the “spend less than you earn” rule, you will have funds to put towards creating wealth! 

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Managing wealth
One of the most important elements of any financial plan is a budget. Budgets can be hard to stick to, so make sure your budget is:

  • Realistic – don’t cut down all expenses (unless you have to) – leave some room for a few treats.
  • Monitored – track expenses and income, list them - at least once a month – so you know if you are on track with your budget or not.
  • Flexible – have a cushion in your budget for unplanned expenses.
  • Reflecting your financial goals – if your goal is to save Rxx for a deposit on a second property, or Rxx for a new car, include these amounts as an expense in your budget to give you the best chance of achieving your goal.

Your budget is how you keep track of all your income and allocate it to certain expenses and wealth building activities, such as investing – and growing generational wealth!

To help you stick to your budget, involve your family in your budgeting process. For example, set aside 30 minutes each month to track your expenses and income and get your partner or spouse and children to help you complete your records!

You can also get a money buddy who will help you keep on track! In turn, you can help them stick to their goals and budget.

Preserving wealth
Managing your wealth so that it lasts for generations requires commitment from family members, and a multi-generational wealth plan!

Your plan will include:

  • A valid, up to date will that details what happens to your assets, such as a family business, when you pass.
  • Details of any trusts you set up to manage money for minors or for your heirs, for example you may want to set up a trust that holds your assets and distributes the income to your heirs to ensure your assets are preserved.
  • A letter of wishes that can include how you want your family and future family members to benefit from your wealth. This is where you can share your words of wisdom with your family and heirs. For example, you can advise your children to keep their investments and use the income only. A letter of wishes is in addition to your will which should only detail who inherits which assets.

You should also encourage your family to build wealth, so that generational wealth grows from generation to generation – this is how multi-generational wealth is built! You can set an example by sharing your generational wealth plans, successes, and learnings!

Good advice will help you manage your wealth

Wealth planning is a big task, one where specialist help from a financial adviser will be useful. Your financial adviser can not only help with your plans, they can also offer ideas to help you achieve your goals!

Build a wealth culture with a financial management plan

Never underestimate the importance of a wealth management plan. Revisit it at least once a year to make sure it reflects your goals, and that you are on track with your wealth building plans! And remember – you don’t need to be wealthy to have a wealth management plan.

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