A Financial Plan with all your long-term and short-term financial goals is essential for a financially secure future. However, as life is uncertain, your financial plan can be negatively affected by several events which are out of your control. Because of these unexpected circumstances, having a flexible financial plan is of utmost importance.
While you cannot control the effect of these events on your financial plan, what you can do is make your financial plan flexible enough so that the effect becomes negligible and doesn’t negatively affect your financial plan.
Significance of flexibility in a financial plan
Because of the following reasons, it is of primary importance that your financial plan has flexibility:
Change in Income
Everyone hopes that there is a constant rise in the overall income every year. However, the main problem with this increase is that it is unpredictable. You can switch jobs after some years with a higher salary than the previous post or rent a portion of your house to someone for a certain amount of money. What it means for your financial plan is the additional amount of money you will then be able to invest in your financial plan. If your financial plan is flexible, you can invest more money towards your investments and can earn more returns. And more returns will result in achieving your financial goals in less time.
Every financial plan requires you to make health care plans for your future. It is possible that while creating the financial plan, the amount of money you thought would be enough for health care can prove to be inadequate. You have to keep in mind that there is a fair possibility that you or any of your family member can suffer from a disease which can result in you spending huge amount of money on the treatment. This is where flexibility in your financial plan can help you in minimizing the financial burden hospital bills will create on you. If your financial plan is flexible, you can make the desired changes in your health care plans.
Economic or political factors
Government policies like interest rates, direct and indirect taxes can negatively affect the financial plan.
For most people, their financial plan is made based on the assumption that they will earn a particular return on their investments. However, the changes introduced by the government can prove these assumptions wrong. The exclusive way to achieve your financial goals after these factors have affected your financial plan is to make specific changes in your financial plans, which can only be done by way of allowing flexibility.
One of the most disastrous and continuously changing factors affecting the economy is Inflation. It seriously undermines the value of money as it increases the price of products and decreases the purchasing power of the currency. The best way to minimize the effect of inflation is to pump more money every time you can, into your financial plan. Moreover, the only way to pump more money is through a flexible financial plan.
Uncertain life events
As life is full of surprises, they can come both in a good or a bad way. Apart from all the factors mentioned above, many other factors can have a big impact on your financial plan. Events like the birth of your children, their education, and their marriage can also create a financial burden on you. It is possible that your child will go to a foreign university for a college education or you will have to spend more money on his/her marriage due to inflation or other factors.
Whatever life is throwing at you, the best way you can tackle every situation is by making the necessary changes in your financial plan. You can make different funds for different needs and a rainy day fund for every other emergency that can occur. To achieve your financial goals effectively, without letting it get affected by all the negative events out there, you should seriously consider making a flexible financial plan.