In life, very often the course of our journey changes, thereby changing the destination. This applies to every aspect of life, especially financial. As we progress in life, our needs, and goals change, making it important to review the financial path you chose and revise it to suit your new goals. The practice of creating a blueprint can be used to determine how to plan for your future, especially how to manage your finances and prepare for any potential expenditures or issues that might crop up. Financial planning involves:
• Evaluating your existing financial situation.
• Listing and prioritising your financial goals.
• Outlining the steps to be taken to achieve them.
Creating a financial plan is not a one-time process. You must regularly review, update, and adjust it as life unfolds. Embarking on your financial journey without regularly reviewing and adjusting your financial plan is like going on a road trip to a new destination without glancing at the map or checking how much fuel is left.
In this article, you will learn the importance of regularly reviewing and adjusting your financial plan and simple tips to stick to your financial plan amidst life’s uncertainty.
Reasons to Regularly Review and Adjust Your Financial Plan
Here are some reasons why it’s important to regularly review and adjust your financial blueprint.
To Keep Up with Life Changes
Life is unpredictable, and different events affect our ability to achieve a financial goal. Regularly reviewing your financial plan makes keeping up with these changes easier, especially for life events such as changing your career, purchasing a home, retiring, getting married, or starting a family. Each of these events requires a fresh evaluation of your existing financial state. Another reason is that these life changes also influence your financial goals. For instance, purchasing a luxury car might have been a life goal. But after getting married, the goal can change to saving for a home. You cannot accommodate these changes unless you regularly evaluate your financial plans.
To Monitor Progress
When achieving a goal, it is important to understand the progress made and the scope for improvement. This cannot be done unless you review your financial plan regularly. Whether saving for retirement, buying your dream home, saving for your child’s education, or any other goal, a regular review ensures you are on track. It helps analyse your current investments, expenses, and savings to check if you are on track, exceeding expectations, or falling behind. You can achieve your financial goals within the established time by making the required adjustments at the right time.
To Optimise Potential Opportunities
The financial landscape is constantly evolving. It brings with it new opportunities and challenges. By regularly reviewing and adjusting your financial plan, you can capitalise on these opportunities and address any potential hurdles immediately. Keep yourself updated about changes in investment options, retirement plans, financial strategies, or tax laws. Similarly, regular review ensures your financial plan is effective and cost-efficient. Whether it’s consolidating debts, refinancing your mortgage, or rebalancing your investment portfolio, these adjustments are needed to reduce unnecessary expenses, improve financial performance, mitigate risks, and maximise potential opportunities.
To Reduce, Avoid, and Mitigate Risks
Risk management is an essential component of financial planning. These factors affect your financial stability, whether it is external events such as inflation or an economic downturn or personal incidents such as illness or accident. To ensure your financial plan has no potential gaps, it is important to review it regularly. For instance, a review might show that your emergency fund is not sufficient to sustain your current lifestyle, or you may need more insurance coverage. Unless you review your financial plan, you cannot concentrate on mitigating risks and protecting your financial well-being.
Tips to Stick to Your Financial Plan
As mentioned, financial planning is not a one-time process. Instead, it involves regular reviews and adjustments. Sticking to your financial plan is crucial to achieving your financial goals. What is the purpose of planning if you do not stick to it? Here are some simple tips that can be used to stick to your financial plan.
• Don’t be too aggressive about saving and investing. Ensure you don’t overstretch and overburden your resources, and ensure the financial plan has some flexibility.
• Maintain separate bank accounts for income received, savings, and investments. This differentiation makes it easier to stick to your financial plan. For instance, a simple rule could be to spend only from your income account. Payments to other accounts can also be automated to further simplify things.
• Since life is unpredictable, preparation is the only way to stick to a plan. The best way to do this is by creating an emergency fund. Set aside a sum equivalent to at least six months to one year of your regular earnings to sustain your current lifestyle. This fund can be dipped into in an emergency without breaking away from your financial plan.
By now, you would have realised that financial planning is not an event but an ongoing process. You must regularly review your financial plan and make the required adjustments to ensure it is still relevant and realistic. Financial planning is needed to optimise your savings, grow wealth, and achieve your financial goals. Since all financial decisions directly impact your financial well-being, carefully consider your risk, tolerance, savings, investment goals, and financial goals.