We have discussed at length the various components of the financial planning process, but a key step is then to regularly monitor the plan and check it is still right for you. Just as how you undergo regular health checkups to review your health and regular service for your car, your financial plan also needs regular examination. Here are a few reasons to consider when to review your financial plan.
Change in financial conditions: The first reason why you should review your financial plan regularly is to reflect any change in your financial conditions. Sometimes you realise you have not progressed much towards your goals despite a considerable time having lapsed. This requires you to change your investment plan, and sometimes other goals as well — for instance, you can change your retirement date, or decide to buy a different house to the one planned earlier.
Change in income levels: Given the ever changing financial climate, it is possible that your income may change or you may not get the bonus you expected. Another case is when you change jobs and receive an increase in income levels. This may lead to the earlier realisation of financial goals, and as a result, gives you flexibility to bring change to your goals.
Sudden expenses: Another reason why your financial plan can go haywire is if you have sudden emergencies for which you are not financially prepared. Maintaining a contingency fund always helps in such cases. However, if you do not have a contingency fund, you will be forced to dip from your savings, which can upset your financial goals.
Change in the number of dependents: When you get married or have children, your responsibilities and dependents increase. This can impact your cash flows and your financial plan. You may have to increase your insurance cover and include your dependents in your Will. Similarly, when your children are married and not dependent on you, your financial plan can change accordingly.
Change in goals: You are likely to have different goals and priorities when you are in different age brackets. For example, when you are in your 20s, you would like to save for your marriage and give holidays a priority. As you become older and if have children, you may wish to plan for their education and marriage. Retirement is another goal which needs to be planned for, from the beginning of your career. Your goals change as you progress in life. As a result, your investments and financial strategies also need to be updated to reflect the changing goals.
Change in risk profile: Similar to how your goals change in life, so does your risk appetite and risk tolerance. A younger person may be willing to take more risk and invest in more aggressive areas like equities, while an older person may want to safeguard his principal and invest in lower risk funds. As your life changes, your risk profile will change, calling for the need to change your financial plan after proper review.
All personal and economic changes in your life need to be incorporated in your financial plan. This does not mean that your financial plan should be reviewed only if you face the above changes in your life. Even if things do not change, you must review your financial plan at least twice a year to analyse the position of your investments and see if this is helping you achieve your goals. Remember that merely creating a financial plan will not help you attain financial stability. Reviewing your financial plan regularly and making changes as required will help you meet your goals and achieve financial stability.
The writer is Regional Director at Acuma-Independent Financial Advice. Opinions expressed are his own and do not reflect those of Gulf News.
