Change in financial conditions: The first reason why you should review your financial plan regularly is to reflect any change in your financial conditions ó internal or external.
Sometimes, on review, you will realise that 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 ó for instance, you may have to retire later than you initially planned, or settle on buying a house that is lower in value than what you had planned earlier.
Change in income levels: Given the uncertain market scenario, it is possible that your income may come down or you may not get the variable pay you expected. In such a case, your financial goals may not be met as your investment levels may reduce. This calls for a review of your financial plan. Another case is when you switch jobs and receive a salary hike. This may lead to earlier realisation of financial goals and, as a result, give you flexibility to bring in additional goals. You may also find that you have not withdrawn your PF balance when you shifted jobs, which will require you to change your retirement goal funding plan.
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 helps in such cases. However, if you do not have a contingency fund, you will be forced to dip into your savings, which could upset your financial goals. This calls for a review and change in the financial plan.
Change in the number of dependents: When you get married or have children, your responsibilities and number of dependents increase. This could impact your cash flows and financial plan. You will have to increase your insurance cover and include your dependents in your Will. Similarly, when your children are married and not dependent on you, you should change your financial plan accordingly.
Change in goals: You will 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 have kids, you begin to think about their education and marriage.
Retirement is another goal that needs to be planned for from the beginning of your career. But many people ignore this, and start planning for retirement in their 40s only. Thus, 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: Just as goals change in life, so do your risk appetite and risk tolerance. A younger person may be willing to take more risk and invest in aggressive avenues like equity, while an older person may want to safeguard his principal and invest in debt instruments. As your life changes, your risk profile will change, calling for the need to change your financial plan.
All personal and economic changes in your life need to be incorporated into 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 once 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 the plan regularly, making changes as required and leading a disciplined life will help you meet your goals and achieve financial stability.
The writer is CEO of BankBazaar.com