5 situations when you should review your financial plan

Here are the five scenarios when you should review your financial plan with your financial advisor.

Padmaja Choudhury   /   January 29, 2022

A financial plan helps you realise your financial goals, such as buying a dream home or car, travelling abroad, saving for your children’s education, wedding, and retirement.

Making a budget alone isn’t enough. Events known and unforeseen effect us and our finances in positive or bad ways. Don’t let your financial strategy get stale and keep up with the changing scenarios by periodically reviewing and balancing your financial plan.

Here are the five scenarios when you should review your financial plan with your financial advisor.

When everything is okay

Most of us make the mistake of getting down to planning or reviewing a financial plan when something happens. Instead, of waiting for that period, the best time to review a financial plan is when everything is going okay.  

When things are peaceful in your financial life and there isn’t a fire to put out, that is when you should build a financial plan since you have the energy and focus to do it.

Also, when you are reviewing your financial plan, you should also consider major upcoming changes such as switching to a career you love but losing access to equity compensation at your present position, or reaching a major life milestone, such as getting married or getting married.

Planning for the future circumstances will help you stay grounded in your financial realities and allow you to make better decisions and choices during hectic times or seasons of life.

Increase or decrease in income:

Changes in income plays a key role in financial planning. As a result, it is reasonable to assess your financial strategy once a year when your salary increases and make minor adjustments to your investments.

Other important occurrences, such as a promotion, a job loss, a long sabbatical, early retirement, and so on, might cause the proportion of your income to fluctuate dramatically.

Under these circumstances, your financial plan would need to be re-evaluated. Just as you can increase your investments when your income increases, you might have to cut investments in difficult circumstances.

Changes in your personal risk profile

Different individuals can take different risks. It is true both for life and finances. Moreover, it won’t be wrong to say that the risk tolerance may also change with time. The risk tolerance may depend on various circumstances such as our age, income and costs, emergency savings, financial responsibilities, insurance coverage, and time required to attain the desired goals, among others.

For example, you maybe able to take higher risk when you are younger, but as you get older, it may decrease. Similarly, if your income is high, you may be willing to take on more risk; yet, if your net income is low, your risk appetite may be limited.

Reviewing the risk profile is a continuous process. Modifications in risk profile must be accounted for in the financial plan through a review so that necessary changes in asset allocation and investments associated with each goal may be made.

Significant occurrences

Marriage, the birth of a child, the education and post-graduate education of your children, their marriage are some of the significant life events. All of these occurrences call for a review of your financial plan. It is because the financial plan now needs to be prepared after considering these important changes and the various requirements that come along with it.   

A financial plan review can assist you in identifying any gaps and taking necessary action. If you are getting married, for example, and you have purchased an individual health insurance policy, it is time to upgrade to a larger family floater health insurance policy.

New goals

If there is one thing that is constant in our life, it would be change. Over time, our goals and priorities change.  

For instance, when you are in your early twenties, your priorities can include taking a vacation every six months and spending a lot of money on your lifestyle. However, once you have children and a family to support, your spending habits and aspirations will change. You may be now investing money for your child’s foreign education.  To achieve these new goals, the existing financial plan may require a makeover.

Conclusion

A financial plan is based on your financial goals, which are based on what you know about your current situation. But life changes and it calls for a review of the financial plan to cater to the different changes. Here, we had discussed the five situations when you may carry out a review of your financial plan with your advisor.   

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