Family Economics And Consumer Education 3 (2+1)

Lesson 03 : Management of Wealth

Management of wealth

Management of wealth by a family or individuals involves the following plan and organization.

1. Set a goal building wealth: Wealth is accumulated through investment. Hence it is necessary to set targets of investments and also cut off dates when investments become non- productive. Search the alternative investments channels. It is desirable to set a specific rate of return expected from each investment.
2. Controlling the Accumulation of wealth: It is essential to plan wealth and evaluate for measuring of progress and identify positions at a given time.
1. Establish a capital fund: This process involves saving of current income and also to accumulate. This accumulated income has to be invested. This process results in the establishing of the capital fund which is useful in accumulation of wealth. The current income is put to more effective use.
2. Identify the risk limits: No investments or saving medium is best for all purpose at all time and for all people. Determining how much risk will be accepted for potentially greater returns will help the accumulation. It is to be noted that return in investment and the risks involved differ from person to person. What is satisfactory for an elderly person requiring safety to his investment may not be satisfactory for another person who desire, compounding and growth of income for education of children.
3. Develop financial management skills: Purposefully developing finance managerial skill is important. Making decision needs skill and ability, Knowledge of source of information about investment, understanding the element of risk in the investment and the ability to compare the savings scheme and their services to satisfy the personal needs are all essential to build wealth.
4. Diversity assets: “Do not put your egg in one basket” It is the saying true to the investments and savings. Savings and investments should not be made in a limited avenues or areas. Such concentration may result in losses. It is advisable to invest funds for wealth maximization in diversified areas. So that the risk of loses in a particular area may be compared by gains in other area or avenues. Hence it is necessary to diversify the assets. Plan some safe investments. They serve as support against losses from more risky investments in the family saving schemes. The potential returns are worth the risk and if the family assets are such that the loss would not impose a serious impact on the family living and goal attainment.
3. Know the location and earning value of asset: No one can afford to buy stocks and forget about them. Price fluctuation needs to be investigated regularly. One should always remember purchase date, purchase time, no of stocks purchased, name of the company and earning value of these assets. Regular watching or monitoring is essential to avoid risks of losses.
4. Protect the assets adequately and reasonably: Determining insurance need is essential but difficult. General guidelines are to insure what one cannot afford to lose in reasonable amount of time. Although a sales person makes all assurance of investment its function is primarily protection. Whether a person needs insurance or not varies with what is to be protected. One should learn about who is to be protected, what is to be protected, what the policy covers, who gets benefits, when the benefits will be payed, under what circumstances conditions the benefits will be given etc while insuring any property.
5. Plan for transfer of wealth: It is a well known fact that one cannot take wealth with them after their death. But one can plan how the wealth has to be distributed with families. The accumulation of wealth is a joint venture and the death of one member in the group or family will cause a little problem with regard to the ownership of the wealth.

Everything the person owns, at the time of death is legally a part of diseased persons wealth. It may include the savings , bank accounts, stock and bonds , shares, real estate etc. Hence , planning for distribution of wealth is most essential component of accumulation of wealth.
A will is a planned distribution and disposition of a person’s property after his or her death. The will has no legal effect while the person is alive and it can be changed at any time,
A will simplifies distribution of wealth and allows a person making the will to specify how he wants to distribute his wealth.
Joint Tenancy:
Many couples hold property in joint tenancy with right of survivor ship if property is held in joint tenancy by a husband and wife, at the death of either party the property belongs to the other party.
Family trust Funds:
A trust provides a means of conserving funds or properties by transferring the management to competent administrator, either a person or a financial institution. It is a legal arrangement whereby the funds or properties are placed in the safekeeping of disinterested party, called a trustee, and the returns are paid to another party, called the beneficiary.