Financial Planning Pyramid : Wealth Protection, Accumulation & Distribution

Financial planning is about developing strategies to help you manage your financial affairs and meet your life goals.Most of us spend too much time concentrating on only one aspect of Financial Planning i.e., Investment Planning (we can call it as Wealth Accumulation). We tend to invest our time and energy in identifying Investments that can generate High returns. In the process, we neglect or ignore other important aspects of Financial Planning. Let us understand about the other important aspects of a solid Financial Plan.

Blocks of Financial Planning Pyramid

I have created a Financial Planning Pyramid with three pyramid blocks as below. All these blocks are equally important. Let us understand these..Financial Planning Pyramid

1. Wealth Protection :

Ideally you have to start creating your financial plan with Protection Planning. You need to first protect ‘What you have‘. It can be your Life, Health, Property, Vehicles etc., Plan for sufficient insurance coverage and buy right products to cover the risks associated with all these. Another important point is to ‘create and maintain an Emergency Fund.’ This can be to the extent of 3 to 6 months of your monthly living expenses. But, do not invest this fund in risky investment products. The main objective of maintaining this fund is to have ready cash to meet any unforeseen emergencies. Besides these two points, you can concentrate on maintaining a monthly Budget. Track monthly cash inflows and cash outflows.You can plug any leaks by doing this exercise.

2. Wealth Accumulation :

Most of us concentrate more on ‘how to create wealth.’ Undoubtedly this is an important aspect of your financial plan. But, accumulation without having a proper protection plan may prove costly when you have to face bad times.

Once you have developed good Protection Plan then go ahead and create list of realistic Financial Goals. Examples of   accumulation goals can be ‘creating corpus for your Retirement’, Kid’s education goal, ‘purchasing a Property’ etc.,

Select suitable investment products based on the time-frame of your goals. Do not hesitate to invest in risk-oriented       products like equity mutual funds or shares for your long term goals. Once your have allocated your savings towards        each goal then continuously monitor your portfolio. If required change your asset allocation (Debt vs Equity) .

(You may visit my post on “How to create a Solid Investment Plan?“)

     3. Wealth Distribution :

This is also known as Estate Planning. It is the most neglected aspects of Financial Planning. Let us assume you have created a good protection plan and good wealth accumulation strategies. But, what is the use of building assets and buying insurance policies if you have not mentioned proper nominations on your investments.

If the head of the family dies without leaving a Will (Intestate) or without mentioning the nominee names then it is an upheaval task for the legal heirs to access the investments/assets. We have lot of high profile examples for this, like Dhirubhai Ambani, Abraham Lincoln, Picasso, Agatha Christie, who died without writing a Will.

Estate Planning is the process of making a plan in advance and naming whom you want to receive the things you own after you die.It is very easy to write a Will.  You can now create Wills through online Will drafting websites like LegalDesk.com, Ezeewill.com etc.,

(You may visit my post on “Now, write your WILL online.“)

In the below image I have included the action items /tasks in the blocks of Financial Planning Pyramid. You may find Tax planning in the below image. Tax planning is a tool but not a Goal in itself. You can create a good tax plan so that it helps you in identifying tax efficient investment options. But, remember it should not be the sole criteria to invest in a financial product.

Financial Planning Pyramid 3

Financial Planning is a dynamic process. It is not a one time activity. Have you created a sound Financial Plan incorporating all the above blocks of Financial Planning Pyramid? Share your thoughts.

Continue reading :

(Image courtesy of Stuart Miles / FreeDigitalPhotos.net)

  • S.K. says:

    I wish to use ITR2 to show STCG. However, sheet ‘CG’ the various items are confusing. Kindly guide me againsr which item number in CG should I show the following STCGs:
    1) STCG on sale of TAX FREE BONDS.
    2) STCG on sale of Equity Shares.
    3) LTCG on sale of EQUITY ORIENTED MF. (should this be under EI sheet (Exempt Income)?)

  • S.K. says:

    My wife’s brother has gifted her Rs 1.25L from his NRE Account. Is it compulsory to show this amount in ITR? Should this he shown under ‘EXEMPT’ income? Worried that her RGESS INVESTMENT benefit would be nullified if this amount is added to her GROSS overall income from ALL SOURCES whuch amounts to around Rs.11.7L. Please advise a solution.

    • Dear S.K.
      1 – Yes, you can show it under EI schedule.
      2 – This is only for reporting purpose and I believe that there is no need to add to her gross income.

      • S.K. says:

        Sir, Thank you for responding. Total GROSS INCOME without deductions should be less than 12L to qualify for RGESS deduction. My wife’s total GROSS Income is already 11.7L If I add the GIFT if 1.25L even under EXEMPT INCOME the GROSS Income will total upto 12.95L, hence I will exceed the RGESS Limit of 12L. Please clarify/advise & oblige.

  • Himanshu says:

    Hii
    I am 25 yrs old.
    Below are my investments:

    HDFC Pro Growth Plus ULIP (Balanced Fund) : Rs 4166 pm. Period:10 yrs
    HDFC Click 2 invest ULIP(Opportunities Fund) : Rs 3000 pm. Period: 5 yrs investment returns after 20 yrs but can cut it down

    I am also saving Rs 10000 pm in RD
    and Rs 8000 pm in PPF

    I have a term insurance:
    HDFC click 2 protect plus: Rs 13000 annually.

    Have an Car EMI : Rs 18000 pm

    My current goals are to buy house after 5-6 yrs
    And wealth creation

    I want to invest in MFs and ELSS

    PLZ ADVICE.

  • Sandeep says:

    Hi Sreekanth,

    Thank you so much for reply, I appreciate your time.

    I can’t close TATA AIA ULIP because as per T & C of policy if I close prior to 9 years I’ll get only 75% of total fund value which is less than my investment (total paid premiums). I have completed 7 years and only Rs. 9000 surplus as of now. To get at least all my paid money, I should stay invested for next 2 years. I have switched to Equity fund and I am sure I’ll not be in loss after 2 years. As of now I could not find any better option if I surrender that policy and invest that lump sum amount. So that’s not a problem, I’ll continue as of now.

    Request you to advise me on other problems. Apart from my regular income of around 14L, I earn about 4-5L doing some part time work as well from professional websites and get paid though PayPal or Direct transfer to my bank account.

    If you are having any consultancy charges, please let me know. I need serious financial planning.

    What do you suggest for following investment options? ( I am going to exhaust 80C limit in this year any how.)

    I am going to start Rs. 84000/annum for Sukanya Samridhdhi Scheme.

    How much should I invest minimum on Axis LTE – ELSS as you replied previously ?

    It would be great if you can suggest some specific MFs to invest irrespective of tax saving.

    Should I go for PPF, NPS, Rajiv Gandhi Equity Saving Scheme, National Saving Certificate? If yes, how much amount?

    I don’t have any specific financial goals apart from Retirement(60-70) and Home (3-5 years later). I may move to abroad in this year and can earn more.

    Looking forward for many more interactions.

    Thanks,
    Sandeep

  • Sandeep says:

    Hi Sreekanth,

    Very nice articles. I am a fan of your articles.

    I have few questions about my financial planning.

    Current Position:

    Salary: Around 90,000/ month + 100000 annual bonus

    Term plan : HDFC Click2protect, Sum Assured : 25L, Planning one more of Rs. 50L

    ULIP: Tata AIA, 2083/month, can’t close before 2018, will continue, fund switched to equity, Total investment Rs. 224000

    MF: Axis LTE dividend, In loss so investing just Rs.500/month ( What is 3 years lock-in period? Does that mean, I can withdraw Rs.500/month after 3 years or the entire amount) What is RTA? Total investment: Rs. 35000 only

    Rented Flat: Rs.13750/month

    No other investment.

    Please more better options.

    Thank you,
    Sandeep

  • Kaustubh says:

    Hi,

    I am saving monthly 10k which I want to park in scheme where both liquidity and good returns are available.
    FD and RD are not options as interest rates are low will decrease further.
    I was evaluating option of liquid funds/ultra-short term funds or Monthly income plans (MIP).

    Can you suggest me in which schemes should I invest. Also I want to avoid taxation on returns as much as possible.
    Thannks

  • swati panda says:

    dear sreekanth,
    I have invested haphazardly in variously MF without knowing how to invest properly,Below is the MF
    I have invested.-
    1. Reliance regular saving fund- sip-1000/m
    2. Reliance banking fund-sip-3000/m
    3. Reliance retirement fund-sip-10000/m
    4. Reliance pharma fund-sip-4000/m
    5. Reliance regular saving fund(equity)-sip-2000/m
    6. Reliance regular saving fund(balanced)- lump sum- 100000
    7. Reliance growth fund-sip-2000
    8. Reliance dual advantage -VIII- lump sum-200000
    9. Reliance growth fund- lump sum- 25000
    10. BLS mid cap fund-sip-2000
    11. BLS frontline equity fund-sip-1000
    12. HDFC prudence fund-sip-1000
    13. HDFC growth fund-sip-1000
    14. SBI Magnum comma fund-sip-2000
    15. SBI Magnum contra fund-sip-1000
    16. SBI Magnum global fund-sip-1000
    17. SBI Magnum balanced fund -sip-1000
    18. SBI Magnum multicap fund-sip-1000
    19. SBI Magnum blue chip fund- lump sum-10000
    20. ICICI equity income fund- lump sum- 1000000
    21.ICICI focused blue chip fund- lump sum- 10000
    22.Axis Hybrid bond-lump sum-500000
    23.IRFC Tax free bond- lump sum-791000
    24.Reliance capital builder -II-lump sum-740000
    25.LIC premium-43000 anually
    26.PPF- 150000 anually
    27. Sukanya sambridhi-150000 anuall

    Can you suggest what to do know? I am puzzled.I I was guided by some investment agent I want go give my portfolio a proper shape, so that return will be more and investment become more systematic. Please help me .I am 38 yrs, having 2kids. monthly income around 80000.

  • MANISH says:

    HELLO, IN MY OPINION FINANCIAL PLANNING IS CHANNELIZING YOUR RESOURCES TO YOUR FUTURE GOALS AND MAKING A CORPUS WHICH IS REQUIRED FOR YOUR FUTURE. Tax planning

  • SILADITYA says:

    Deer Sreekanth,

    I am a first time investor in Mutual Funds Through SIP I want to do a Monthly SIP of
    around Rs 4,000/- with a starting lumpsum investment of Rs 30,000/- which are my arrears my age is 30 years and i want to invest for long term wealth creation and TAX benefits. I want to know what kind of portfolio i can have and how to pic funds to have diversified portfolio for my investment goals. Please suggest.

    Regards

    Siladitya.

  • Emebu says:

    Awesome, a great start for 2015 following this tips.

  • Jadip says:

    A very concise and informative post. Thanks for sharing the same.

  • Amazing shree…can u pls share ur number..my number is 97693951**

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