In general, there is no ideal time for high-net-worth financial planning. However, it is recommended by experts to start making a financial plan as early as possible. By doing so, you can thoroughly analyse your financial situation and decide accordingly.
Tips for High Net-Worth Financial Planning in India
Financial planning involves formulating a strategy to manage your finances and assets. However, high-net-worth financial planning is much more advanced and focuses on individuals with a higher amount of wealth. Being an individual with a high net worth, it becomes vital to evaluate individualised challenges while creating an all-inclusive financial plan.
A financial advisor can assist by providing a strategy to lessen your tax burden, clear debt, and strengthen your investment portfolio, enabling you to reach the next level. To know more, keep reading.
What Is High-Net-Worth Financial Planning?
Precisely, high net-worth financial planning signifies the financial planning associated with high-net-worth individuals. These affluent individuals are classified into three categories: high-net-worth persons, very high-net-worth individuals, and ultra-high-net-worth individuals.
High-net-worth people own liquid assets of $1 Mn or above. On the contrary, very high-net-worth people own liquid assets of a minimum of $5 Mn and a maximum of up to $30 Mn. Finally, ultra-high-net-worth individuals are those who own liquid assets worth equivalent to $30 Mn or above. You will be treated as a high-net-worth individual if you fall under any of these three categories.
4 Tips for High Net-Worth Financial Planning in India
In general, high-net-worth persons indulge in more advanced financial planning than the standard one. With the escalations in the value of their investable wealth, it becomes essential to conduct thorough high-net-worth financial planning, investment planning, wealth management, and risk analysis.
Below are some essential tips high-net-worth individuals need to follow to meet their financial goals:
1. Starting Early
Remember that the more wealth you own, the more challenging it will be for you to manage. Paying income tax, property tax, debt, state tax, estate tax, investment returns, etc., can take time and effort. Hence, you need to analyse each of them minutely by considering your financial position.
The earlier you take care of these, the easier you will be able to handle your financial situation. Thus, making an upright financial plan initially puts you in a strong position by which you can plan for your future and post-retirement life more effectively.
Many individuals overlook the idea of making high-net-worth financial planning from the beginning. Consequently, improper financial management can result in overspending, running up credit cards, and eventually make you fall into further debt.
2. Consolidating Assets With a Financial Advisor
Sometimes, many ultra-high-net-worth individuals and their families open too many accounts with different financial institutions to branch out their investments and lessen risks. However, diversification of investment portfolios only causes more misunderstanding. For this, detailed financial planning for ultra-high-net-worth individuals makes sense.
Consolidating properties and assets under the guidance of an advisor will be helpful for UHNWIs and their families. This helps lower expenses related to managing too many accounts, convenient investment planning, efficient administration, etc.
3. Tax PlanningTaxes can reduce the wealth you accumulate, and it will be prudent to find ways of reducing them. A financial advisor can be especially helpful in implementing these strategies and optimising your tax strategy. Philanthropy and charitable donations are just two of the ways you can do this. Besides these, you can contribute to retirement funds with tax advantage and harvest tax losses.
4. Opting for Life Insurance Plans
Life insurance is useful for the wealthy to maximise their funds and pass on more money to their successors. Life insurance policies can act as an investment tool in addition to being a safeguard. Life insurance is not something that only wealthy people benefit from. However, it provides several benefits for high-net-worth individuals.
Insurance policies can be invaluable to your financial plan, and you might need different types of policies. A financial planner can help you determine what type of coverage you need and how much to protect your home, belongings and your family's financial well-being.
What Is the Formula to Compute Net Worth?
If you are still determining whether you fall under the category of high-net-worth individuals, do calculate your net worth.
You may apply this formula to determine it:
Net Worth = (TA – TL).
Here, TA and TL represent Total Assets and Total Liabilities, respectively. You will get the correct net worth value by deducting your total liabilities from the total number of assets. Remember that these values apply only to liquid assets such as cash, bonds, treasury bills, certificates of deposit, stocks, etc., and not to physical assets like buildings, land, machinery, vehicles, etc.
For instance, if you are the owner of a house worth $4 Million but have only $80,000 in your bank, you will not be treated as a high-net-worth individual. On the contrary, if your bank balance and investments are valued above $1 Million, you will be considered under the high-net-worth category.
How Is High-Net-Worth Financial Planning Different From Financial Planning?
Following are the differences between financial planning and high net-worth financial planning:
High-Net-Worth Financial Planning
Formulating a financial strategy and trailing the same for achieving financial goals in the short-term and long-term is called financial planning.
High net-worth financial planning goes beyond general financial planning. It intends to formulate holistic financial strategies comprising investment planning, tax planning, insurance, and risk management to achieve the financial goal and accumulation of wealth for individuals having high net worth.
It is important because it helps people meet their financial commitments, gain financial security and save money for their post-retirement phase. In simpler terms, it takes care of goal-centric financial planning.
It is integral for affluent people to ensure financial protection, growth, and wealth accumulation over time. Precisely, it focuses on opportunity-centric financial management.
Financial planning for individuals involves cash-flow management, investment planning, debt management, retirement planning, risk management etc.
Financial planning for individuals having high net worth encompasses advanced investment planning, retirement planning, risk assessment and control, tax saving strategy building, preservation of wealth and finding ways to pass them on to their heirs, trust planning, and asset protection. It also includes philanthropic planning, life insurance and high-value insurance planning.
You need to hire a financial manager who will evaluate the financial matters and needs, providing advice based on your income and financial goals. The financial planner also suggests asset allocation considering your risk profile.
Financial planning for high-net-worth people is a complex and comprehensive, process. Due to this, other than financial managers, it also requires professionals specialising in tax planning, estate planning, legal area, investment planning, insurance advisory and wealth management.
FAQs about High-net-worth Financial Planning
Some of the important components of high net-worth financial planning are as follows:
- Income and capital gains tax planning
- Wealth planning
- Estate planning
- Retirement planning
Individuals with a high net worth can manage assets efficiently by opting for the following:
- Commercial liability insurance
- Professional liability insurance
- Directors’ and officers’ insurance
- Personal umbrella insurance
Other Important Financial Planning Guides
Important Articles About Financial Planing
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.