Wealth planning is an important process for long term financial freedom. It involves structuring of your earnings, assets and expenses in a way that helps you accumulate and grow wealth over a period of time. It is crucial for going debt free, enjoying the pleasures of life and weathering financial challenges without breaking a sweat.

We believe that wealth planning skills should be taught to every single person in school. However what we find in reality is a completely different picture. A majority of young adults, college grads and even people in their mid-thirties are clueless about the important of wealth planning and how it can benefit them.

In this short guide, we are going to take a crack at what wealth planning entails.

How Do You Create a Wealth Plan?

A wealth plan is a multi step process.  You will need to consider your income potential, the amount of wealth you have right now and the money you will need to sustain your current lifestyle. You should also consider where you want to end up in life.

While the process of wealth planning differs from person to person, it requires careful consideration of the following factors.

What Do You Want To Do In Life?

This is perhaps the most important question you need to answer in order to create a wealth plan. Your wealth planning begins by deliberating on what activities you enjoy and how you want to spend your time.

If you love to read or write books, your wealth plan must revolve around that activity. Do you love socializing? Consider a career in marketing or sales. Do you want to go on a world tour? Consider a career in hospitality or traveling.

Building wealth does not necessarily come at the cost of sacrificing your dreams. In fact, the more enjoyable your work is to what you want out of life, the more motivated and productive you will be in achieving financial success.

What Resources Do You Have Right Now?

Wealth planning starts with taking account of your current resources, financial and non-financial, to assess how you can use them most effectively. If you have managed to save a bit of wealth in your early twenties and put it to good use, you will be better off in ten years time compared to someone who only starts saving after they turn thirty.

While it is true that people who are born in a wealthy family are more likely to get an easier ride in life, it is not a certainty that everyone born rich will always remain so. There are thousands of success stories where people who came from impoverished backgrounds with nothing made it really big.

You can change your lot in life, but you need to plan how you will get to where you want to go.

What are Your Earnings?

The key to the success of your wealth plan is based on how much money you make each month. The more money you make the better.

There are several ways to increase your income. You can take on a second job, invest in income producing assets, buy stocks or even start a new business.

In the beginning, you will have to rely more on your job, business or other active work to generate an earning. Over time, your passive income should take over a major part of your earnings.

Consider Your Life Style

Your lifestyle is the second part of the equation for building wealth. The amount of money you earn in each period must be higher than the amount of money you spend on maintaining your current lifestyle. As long as this is true, you will accumulate wealth.

If you are unable to increase your income, then you will need to lower your expenses to keep building wealth.

Invest in Income Producing Assets

The money that you save over the years should be invested into income generating assets. Income producing assets come in many shapes and forms. They include everything from stocks, rental properties, leased machinery and equipment to saving accounts, pension funds, new businesses and royalties for using your brand.

The more passive income producing assets you can create, the sooner you can move on towards your goal of financial independence.

Plan for Retirement

Traditionally, retirement meant reaching old age when you were no longer able to work. That is not the case anymore. Today, retirement means the age at which you want to stop working. You can retire early if you have accumulated enough wealth that can sustain your desired standard of living without the need for going back to work.

These days, we have countless examples of people who retire in their forties and even early thirties. The sooner you can retire today, the sooner you can get on to pursuing your dreams and stop worrying about going to work.

The ultimate goal of wealth planning is to have your cash inflows and outflows at a stage where your money keeps generating enough income to meet your expenses without compromising on your standard of living.

Take Inflation into Account

Inflation is an important factor that you shouldn’t neglect when planning for retirement. We won’t get into a complete economics course to explain what it is. In a nutshell however, inflation determines the erosion of the dollar value of your wealth. The higher the inflation in an economy, the more your wealth loses its value.

On average, inflation hovers between 2% to 4% in the economy. The interest rate is generally set higher than inflation to encourage savings and investments.

Summary

This is a simple wealth plan and the items to consider for a full wealth plan include:

• Retirement Planning
• Tax Planning
• Investment Planning
• Education Planning
• Risk Mitigation (Insurance)
• Estate Planning
• Budgeting
• Debt Planning
• Social Security Optimization
• Business Planning

As you can see it is very involved and covers all aspects of your financial life.

Wealth planning is important if you want to be financially independent and don’t want to ask others for help. While it is possible that a wealth plan may not work out as well as you would hope, it certainly makes a difference facing unforeseen circumstances and financial difficulties. At best, a wealth plan will help you retire early and pursue the life of your dreams.