Your financial plan serves as a guidebook for your money. It presents a clear view of your current finances. And helps you strategise for achieving your financial goals within a specific timeframe. But, chalking out this plan is not a one-off process, as many would assume.
As life progresses, your aspirations, priorities, income, lifestyle, etc. also change with time. Therefore, it becomes crucial to examine your financial plan at regular intervals for making the most out of it.
Ask yourself, when was the last time you reviewed it? Without regular assessment, you run a risk of drifting away from your goals. The following reasons explain why it is necessary to revise your financial plan.
Change in income level
As you advance in your career, you may receive a hike in salary or land a job with higher pay. The resultant increase in your income level enables you to realise your financial goals early. Thus, you get the flexibility to add bigger goals to your plan.
On the other side, it is equally possible that you experience pay cuts. This might negatively affect your investment levels. This situation necessitates a revision of your financial plan to tweak some investment objectives and amount.
Number of dependents
The changing number of dependents throughout your life also directly impact your financial plan. For instance, childbirth or marriage adds to your responsibilities. This can significantly affect your cash flows.
A growing number of dependents can encourage you to increase your insurance cover. You may also include them in your will to avoid any conflicts later. Likewise, you can adjust your priorities when your kids become financially independent.
Additional Read: The relevance of insurance in your financial plan
It’s a fact that life is unpredictable. And you may face an unexpected contingency without being financially ready. In case you don’t have an emergency fund in place, you’ll have to dig into your precious savings. This can leave your financial plan in a mess that will certainly require revision.
Change in the risk profile
Your risk tolerance and appetite evolve depending on your age, income, financial responsibilities, expenses, etc. For instance, you can take more risks as a young investor and buy equity-linked assets or real estate.
On the contrary, you will switch to less volatile investments like fixed income instruments and debt when you become older. Thus, you will need to revise your financial plan at different life stages while considering your risk profile.
Additional Read: The SMART approach to your first financial plan
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