Financial planning and wealth management are essential components of the money management process. Similar as they may sound, both of these concepts are different in their methodology. Understanding these differences and similarities is key to how we invest our capital. But before we learn the differences between the two, let us first understand the concepts.
What Is Financial Planning?
Financial planning is the strategic process of analyzing a person’s income, investments, and assets. This helps them fulfill their financial objectives. This includes obtaining information on assets and liabilities — such as real estate and automobiles, credit card debt and car loans. People involved with financial planning often create budgets to see where their money is going. They use this information to find ways and means to minimise costs and get more control over their finances.
In other words, it is the process of matching your money with your financial life goals to achieve them. The objectives may vary from person to person depending on the income level, but setting goals is necessary for everyone. Thus, financial planning helps define clear and attainable goals by accounting for the investors’ present financial condition and risk profile. Budgeting, efficient tax preparation for income and investments, insurance needs, and retirement planning are all part of financial planning.
What Is Wealth Management?
Wealth management is a type of specialized financial planning. Investment management, financial counselling, estate planning, tax advice, and, in some situations, legal aid are all popular wealth management services. While anybody can adopt financial planning — individuals with considerable funds, assets, and investments often seek wealth management.
Not just that, wealth management is concerned with the accumulation, preservation, and enjoyment of wealth. It could entail devising several long and short-term wealth-building and preservation methods. As a part of wealth management, the investors have to take decisions to grow and preserve their wealth. That revolves around taking care of a variety of asset classes.
Differences between Financial Planning and Wealth Management
Financial planning is thus, the stepping stone towards creating wealth. In fact, a well-structured financial plan helps the investors identify risks, set achievable objectives and take care of unnecessary expenses. That leads to the creation of wealth. As investors execute their financial plans, they generate profits, minimise risks through insurance and make suitable investments. Wealth management, on the other hand, occurs after the wealth generation process is complete. It necessitates constant monitoring of the portfolio to make and discover the best investments.