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Situations when you should review your financial plan

Financial goals that specify one's aims and the course of action to accomplish them are included in a financial plan.

It's like a dream come true to have enough money at the right time to do what you want to do. But when your requirements, your financial flow, and the world around you change, what you plan today might not work next year.

This calls for regular reviews of financial plans once a year. A financial plan review is something you should think about for the following reasons:

Increase or Decrease in Income

Every year, there is a pay rise, and when creating a financial plan, this should normally be factored in. Therefore, when your salary increases each year, it only makes sense to reassess your financial plan and make adjustments to your investments, if required.

However, there are other significant events as well, such as promotions, job changes, job losses, career change, etc., when the percentage of your income may alter significantly. Your financial plan would need to be carefully examined in such a situation. As much as you must increase your investment in the event of a promotion or pay hike, you may also need to reduce it during unfavorable circumstances.

Major Asset Purchase

Purchasing a major asset, such as property or real asset, may significantly alter your financial position. You may have to use your existing savings or take a loan to make the purchase. In such a situation, reviewing your financial plan becomes necessary to factor in the changed circumstances.

Addition/Achievement of a Milestone

Marriage, childbirth, children’s college, and other significant life events are examples of milestones. One may want to evaluate his or her financial plan because these events have a bearing on your priorities. For instance, after getting married, you may have goals like purchasing a home or a bigger car.

Meanwhile, when a child is born, you will have to include financial goals like his/her education and marriage in your financial plan.

Changes in your personal risk profile

It wouldn't be inaccurate to claim that a person's risk tolerance can change with time. Risk tolerance may vary depending on several factors, including age, level of income and expenses, emergency savings, level of financial responsibility, insurance coverage, and length of time needed to achieve the desired goals, among others.

For instance, you could be able to accept more risk when you're younger, but your risk-taking ability may decline as you age. Similarly, if your income is large, you might be more inclined to take on risk; however, if your income is low, your willingness to take on risk might be constrained.

Disability, illness or a change in health status

Life is unpredictable. Even the most cautious and healthy people can be diagnosed with life-threatening diseases such as cancer, heart disease, chronic lower respiratory disease, etc. Or they might meet with an accident that causes a permanent disability.

These disorders or disabilities are expensive to treat. Also, they may cause a person to change his/her lifestyle, which may entail reducing working hours. Loss of income or a reduction in income could result from this.

In these situations, it is crucial to assess your financial plan and adjust a few investing goals. Let's say you had been saving for a foreign vacation, but now that you're sick, you might decide to stop saving for that trip and use the same funds for medical care.

Additionally, a decrease in income may require you to trim down some investments.

Inflation

Financial planning can be significantly impacted by inflation, endangering stability and long-term financial goals. In order to maintain a stable financial position, financial plans must take it into account inflationary pressures so that the long term goals are not threatened and people are able to traverse the choppy economic landscape with more assurance.

Conclusion

Your financial goals, which are based on assumptions taking into account your current financial position, are used to create a financial plan. Our priorities in life vary as time and circumstances change. These are the moments when one should review their financial plan and make the required modifications. Doing this would ensure that you don’t experience financial hardships while still being able to meet your goals for the rest of your life on schedule.