Wealth management is integral if one has to achieve success and have financial security in the long term life plan. If you have a business, the interplay between your business revenue and personal finances is important for sustaining the growth of wealth. In this article, we delve into ways you can manage your personal finances separately from your business finances, and how you can invest in safer options that you are most comfortable with.

Burning Problem Solved: How to Manage Your Personal Wealth

Most individuals with an entrepreneurial mindset or are owners of a business typically face issues managing personal wealth as it relates to business income. The norm blends both strata of income, which poses a challenge of financial confusion and mismanagement. This article emphasizes the need of separating personal income from the business income and using the personal wealth for investment in more secure options.

Summary of the Key Insights

Separate Personal Income from Family Income

Incomes of certain nature such as personal income and business income should be treated distinctly. In this case, one should draw a salary and other incentives from the said business to work towards creating and managing personal wealth.

Safely Invest Your Personal Wealth

Secure investment options for personal wealth in this instance should enable the personal investor to achieve set goals without jeopardizing the financial situation.

Investment Options

Some safe investment options are gold-based savings products, liquid mutual funds, alternative investment funds, fixed assets, and fixed deposits.

Main Content: Managing Personal Wealth

Wealth management is more than just making money. It involves setting aside your funds for strategic investments that promote stability and growth in the long run. Here is a list of the actions you need to take to effectively manage your personal wealth.

Key Point #1: Personal Drawings and Business Drawings Must Be Kept Distrinct

For a business owner, doing so is critically important as it can have serious implications for personal wealth management. Let’s illustrate this with a hypothetical case study.

Scenario: Imagine you have a business. You work very hard on it and spend a lot of time and energy running it. The business makes profits, though some years there are losses too. Make sure that you are drawing a sufficient salary from the business you have built. You are entitled to a salary from the business let’s assume it’s Rs. 50000, but may be a little more or less depending on the size of the business. If the business does well in some year, you could also take a performance bonus.

Why Keep Income Apart?

The most prominent issue regarding the division of both personal and business income is the lack of clarity concerning the flow of money. To illustrate, some business owners may withdraw funds from their businesses to finance personal spending, but do not document these expenses properly. For example, an owner might be spending a lot of money from the business without even knowing it which could highly mismanage the business’s finances.

However, if you set a fixed salary for yourself and do not touch the business funds set aside for reinvestment, you get a much clearer picture of your finances. In this case, the salary will be used for personal expenses such as paying the bills and the business will have additional funds which can be reinvested to increase the company’s growth rate.

Key Point #2: Do Not Sink All Your Personal Net Worth Into the Same Business

It is very easy to spend personally owned wealth into a business that one is sure will bring in profits, but doing that might not be such a good idea. Even when the business is performing well, it is very important to still distinguishing personal wealth from net worth of the business. Instead of pumping all personally owned net worth into the business, try to set and achieve personal objectives through low risk investments.

If your business has built up significant capital or cash reserves, do not attempt to speculate with this money, whether it be through shares or gambling. Everything that does not use investment safe measures can be detrimental to your wealth.

Key Point #3: Protected Investment Strategies Towards Personal Wealth

Any wealth that is personal should be managed wisely and protected with investment strategies that are safe but yield positive growth. The investment options below are an example of easy but efficient investment strategies:

Fixed Deposit (FD):

A fixed deposit guarantees safety within investment options. Even though the return of this investment option id moderate, standing at 5-5.5% ($3.25 after taxes), it is sure and stable throughout making it easier to manage. While making low returns, this option makes it easier to save for the future.

Liquid Mutual Funds:

Liquid mutual funds provide slightly better returns than FDs. These funds invest in short term debt instruments which means the overall investment is safe and provides better returns than FDs. Additionally, straight forward liquidity is guaranteed through these funds.

Saving using Gold:

When saving for a particular target like buying a car or paying for your child’s education, gold based savings is a viable option. Investing in gold can be done systematically through a systematic investment plan (SIP), and professional fund managers assists you in managing these investments.

Alternative Investment Funds (AIFs):

Alternative Investment Funds will be good options to consider when you have a large corpus (e.g. Rs. 1 crore). This fund and is diverse and invests in many different markets, which usually has a higher return with a cap approximating 12-15 percent, however the investment is riskier and so takes more care and wisdom to execute.

Fixed Assets (Real estate, Gold, and Silver):

Significant wealth can be enhanced with investment in physical assets, real estate, gold and silver. These assets have gained much popularity in India as they are perceived as stable investments. In addition, these capitals too can be directly used for shares of good companies to earn great returns over time.

How to Manage Your Wealth with Professional Advisors

As your wealth grows, it might make sense to consider hiring a wealth manager or a financial advisor who can assist with making investments. Almost all brokerage firms provide wealth management service like IIFL, Edelweiss, Motilal Oswal, and even JP Morgan Chase. Also, If your fund size grows too big, you may want to hire a personal wealth advisor, or create a family office which assists in managing the family’s collective finances.

How to create and distribute salaries while building personal funds.

It is important for family members to come together and determine how much to pay yourself for the business along with any other employees. Once the salaries are set, draw them as personal, build your personal fund, and engage in consultation with a wealth management professional to help you earn the most from your investments.

Major Benefits of Managing Personal Wealth

Make a distinction between personal and business income

Separation of personal expenses from business is actually one of several options for effective wealth management.

Establish a salary for you as the owner of the business

Don’t actively draw funds, but rather set aside incentives based on business performance, then draw funds to ensure personal wealth is kept separate.

Avoid investing personal wealth in the business

Try to direct wealth in goal oriented safe investments so as to build wealth and not work towards losing it.

Employ these strategies if you wish to ensure your wealth is properly managed, securely invested, and your financial goals are achieved.