5 Reasons To Review Your Financial Plan Regularly
So, you have your personal financial plan all set. The financial budget is in place. Your financial dreams seem just within reach, right? Wrong. Disheartening and surprising as it may sound, your dream of attaining financial freedom and independence isn’t even half achieved if you simply make a personal finance plan, sit back and relax. Every plan, no matter how perfect it may seem, needs constant reviews and reworking to suit the changes in your personal life and people/society you’re living with.
These days, when everyone gets a health check-up done every few months, gets their cars, air conditioners, refrigerators, and other electronic gadgets serviced regularly, one needs to be reminded that the same principle applies to one’s finances as well if they are expected to perform as one expects. Without a timely review of your investments and financial plans, you are probably as good as not having them at all. Here’s why.
1. Your personal goals may not be fixed
When you made your personal finance plan, you may have had certain goals in mind. For instance, buying a house, a car, you may have your retirement age in mind, etc. However, it may so happen that over the years you may have postponed your plans to buy a house or decided to buy a bigger house than you’d initially thought, or you may have decided to retire at 48 instead of 58 – personal plans and goals keep changing with situations and experiences. Reviewing your personal financial plan , financing options, and long-term saving strategies helps you to understand if your goals are achievable in the current circumstances. You can consult an expert or study the markets yourself and make changes in the plans.
2. Income changes
You may have received a raise or lost a job, or even suffered a salary cutdown in situations like a pandemic or recession. In such unexpected situations, you may want to increase or decrease your contribution to your monthly savings plans , mutual funds, etc. If you’re in the middle of changing jobs, then retrieving your Employee Provident Fund (EPF) or other pending amounts from the previous workplace may take longer than expected. All these situations have an impact on your cashflow. Hence, a review of a personal financial plan becomes vital to rework on investment amounts and objectives. There may arise a need to generate supplementary sources of income to maintain monthly investments or curb certain expenses.
3. Financial emergencies
Any medical emergency is likely to burn a hole in your monthly cash flow, and such emergencies often come announced. Accidents, pandemics, sudden loss of a job, or losing the earning member of the family can be quite traumatic emotionally, and a financial crunch only adds to the pain. Even if you have insurance, claiming it and the subsequent premiums that you have to pay may be higher. There could also be additional expenses that may have popped up during difficult times, for e.g., EMIs, rising fuel prices, etc. A careful look at your financial budget and investment plans becomes important hence.
4. Change in number of dependents
You may have gotten married after you made an investment plan, had children, or have family moving in with you or they may have been a loss of a family member – in such cases the number of people dependent on you may suddenly go up. Even if one member increases in the family, financial requirements are greatly impacted depending on the person’s needs. This impacts cash flow and subsequently, the planning of expenses. Sometimes you may need to get rid of a particular plan to fit the requirements of your family while at times you may want to opt for a couple of more plans that appreciate better financially.
5. Tax changes
Since you created a long term saving plan and financing options until date, there are chances that the laws related to income tax or other taxes may have changed. Or, you may have found a better paying job that falls under a higher tax paying bracket. In such circumstances, a review of your financial plan intending to make the most of your assets and cash flow is a must. It is also important to reap the most of any provisions that your government provides. A review would also allow to you understand whether or not investments are worth keeping, what changes need to be made to comply with new taxation rules, and much more. A personal financial planner or an accountant would be able to guide you best in this case, if you aren’t keeping abreast of the changing laws.
A yearly or quarterly review of your personal financial plan and financial budget increases the likelihood of achieving your financial dreams without much compromise.