Your financial plan is chalks out your financial goals and how you plan to achieve them. As life changes every moment, your financial plan also needs to be reviewed regularly for achieving your goals. I had mentioned some details in one of my previous blog https://sfinance2.wordpress.com/2012/07/01/financial-plan-analysis/ regarding Financial Plan. Following are the reasons why you should review your plan regularly:
1. Change in Financial Conditions: If your financial conditions change, whether internally or externally, you must review your financial plan. And after reviewing your plan you would know whether you are progressing towards your goal or not. If not, then you must revise your investment plan.
2. Change in Income Levels: According to present market conditions, everything is uncertain and your income may reduce or you may not get the variable pay you expected. This shows that you must review your financial plan. And there may be the case that you change your job and your income level raises, this may lead to earlier realization of financial goals which gives you flexibility to bring in additional goals. You may also find that you have not withdrawn your Provident Fund balance when you shifted your job, which will require you to change your retirement goal funding plan.
3. Sudden Expenses: If you have sudden emergencies for which you are not financially prepared then your financial plan may get disturbed. For meeting these sudden expenses you must maintain a contingency fund. If you don’t have a contingency fund then you will be forced to use your savings which can upset your financial goals. And this will call for a review and change in financial plan.
4. Change in Number of Dependents: When you get married or have children, you responsibilities and dependents increase. This can impact your cash flows and your financial plans. You will have to increase your insurance cover and include dependents in your will. And similarly when your children get married and are not dependent on you, change your financial plan accordingly.
5. Change in Goals: There are different goals and priorities for different age group people. Like when you are in 20s you would like to save for your marriage and give priority to holidays. As you become older and have kids, you start thinking of their education and marriage. Retirement is one of the important goals which need to be planned from the very beginning of your career. As your age changes your goals changes and your goals and financial strategies need to be updated to reflect the changing goals.
6. Change in Risk Profile: Your risk appetite and risk tolerance changes as your goals change in life. A younger person may be willing to take more risk and invest in aggressive securities but an older person may want to safeguard his principal and invest in debt instruments. As your life changes your risk profile will change, requiring the need to change your financial plan after proper review.