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The concepts of financial planning and wealth management are used interchangeably in financial discussions. However, these two different terms differ a lot in terms of their nature, operations, scope of activities etc. This piece of writing discusses the meaning and the 5 major differences that exist between financial planning and wealth management.
The process of synchronisation of the financial goals with the personal finances of the individual is called financial planning[1]. The concept of financial planning revolves managing day to day finances of the individual with the aim of becoming financially self-sufficient in life. In includes adoption of multiple financial processes to achieve one’s financial goals. Financial planning is a set of quantitative measures one has to adhere to in order to reach the desired financial objectives.
Financial planning includes various activities such as debt management and cash flow management, management of financial risk by using financial products like life insurance, retirement planning and real estate planning. Financial planning also extends to investments as well and not just making savings like investing in education, home, marriage, children’s education and most importantly retirement plans. Last but not the least, tax planning is also crucial to financial management in order to save an individual’s hard earned money.
The strategies adopted by high net worth individuals for preservation of their wealth and for further accumulation are called wealth management. As part of wealth management, these individuals actively try to identify and take advantage of profit making activities. Wealth management is meant for high net worth individuals or highly rich businessmen. As part of wealth management, these businesses appoint wealth managers to preserve and further accumulate their wealth. Some of the common activities or strategies that form part of wealth management includes capital gains assessment, estate planning, risk management and last but not the least tax management.
Following are the 5 major differences that exist between financial planning and wealth management:
From the above discussion on the difference between the strategies adopted in both financial planning and wealth management, it can be concluded that the process of financial planning goes throughout the span of an individual’s life span whereas the need of wealth management comes at a later stage in the life of an individual when he has accumulate a considerable amount of wealth. The wealth management stage can arrive earlier if the individual has inherited wealth. Though both the processes are related to management of money, they are quite different in their approach.
Read Our Article: What is Private Banking and Wealth Management in India
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