For providing financial aid to your family and securing a financial burden free future for them, it is essential to have a financial plan. However, to make it work in the ever-changing environment and to achieve your financial goals, it is critical to review your financial plan regularly.
Just like you go for a regular medical checkup to prevent medical emergencies, a financial plan also requires a proper check simply to avoid the adverse effect a market factor can have on it.
Why is it critical to review a financial plan regularly?
Following are the main reasons why you should evaluate your financial plan at regular intervals:
Achievable financial goals
There comes a time, after several years of making your financial goals when you have to revisit your financial plan and make some changes. As there is a constant change in the factors affecting your life, some financial goals become unachievable. For example, while making your financial plan, you could have made plans to buy a new home at the age of 40 or save Rs 5,00,000 for your child’s education. However, due to regular inflation and similar economic factors, you have to make certain changes like increasing Rs 5,00,00 to Rs 7,00,000 skipping on buying a new house till you are 50. This is only possible by way of reviewing your financial plan at regular intervals. You will know which goals are achievable and which needs change.
Change in income
Change in income can impact your financial plan in a big way. If there is a rise, you can invest more towards your financial plan and increase your returns. You should review your financial plan at regular intervals to know where you can invest the additional amount of money you are getting because of your increased salary. On the other hand, given the market conditions and inflation percent, it possible that there you can experience a cut in your salary. It would mean that you will not be able to invest the amount you were investing before. This makes reviewing your financial plan compulsory as to know where you can decrease your investments and still can achieve your financial goals.
Your risk appetite will change with time which will reflect in your financial plan. When a person is younger, he/she tends to take more chances and invest in asset classes which are considered risky, while close to retirement, a person tries to minimize risk and invest in less risky asset classes. These changes in the asset classes constitute the primary reason that you should regularly review your financial plan. Studying the financial plan will help you to allocate your assets efficiently, and you can minimize the risk of your overall plan.
Expenses and contingencies
There is no way you can know when a medical emergency can happen. Any emergency can empty your whole life savings and can create a financial burden on you and your family. Even if you have made provisions for contingencies in your financial plan, the cost of medical treatment is continuously rising. There is a need to regularly review your financial plan to know if you have enough for emergencies given the ever-rising inflation. If you think you have not invested enough towards medical emergencies, you can always pump more money in your financial plan.
Family members who are dependent on you for financial aid are another reason to review your financial plan. If you still have kids who are studying in school, you must invest towards the future education of their children and marriage. Once they are adults and have found jobs for themselves, you can again review your financial plan and can allocate your assets accordingly. By reviewing your financial plan at regular intervals, you can provide financial aid for your family without making a hole in your life savings.