5 situations when you should review your financial plan
Having adequate money at the right time for what you intend to do is like a dream come true. Tenets of personal finance talk about the creation and execution of financial plans for the economic well-being of an individual. But what you plan today may not work next year as your needs change, your cash flow changes, and sometimes your environment changes. That necessitates a review of financial plans at regular intervals – at least once a year. Here are some of the reasons you must consider a financial plan review:
Change in income
A salary hike is an annual event in most employment contracts. A salary increase need not necessarily lead to a rise in expenses. However, it may be the case in the initial years as lifestyle inflation catches up. As you continue to rise, more incremental money earned is saved. This needs to be channelised into investments. This can best be done if you are going to review your financial plan.
Do you aspire more?
A financial plan comprises goals that define one’s aspirations and the planned strategy to achieve those. Call it peer pressure or just plain higher aspirations, and individuals spend more and more. For example, one may plan to buy a hatchback and start saving for the down payment. But as his income grows, he may want to opt for a sedan over a hatchback. Higher income has led to a better lifestyle; hence, more savings must be invested.
If you are willing to fund it well in advance by increasing your investments, nothing is wrong about aspiring for more. If you invest in mutual funds using a systematic investment plan, then growing your SIP investment regularly is better. If you start Rs. 1000 SIP in a mutual fund with an expected return of 12%, then over 10 years, you will take home Rs. 221930. However, if you increase your SIP by 10% each year, you will take home Rs. 326889.
Milestone events
Marriage, the birth of a child, kids’ education and post-graduate education, marriage and so on are key milestone events in many of our lives. All such events call for a review of your financial plan because it’s not just you who you are planning. You need to plan for your spouse, your kids, your family.
Large purchases and loans
A home purchase is typically a large purchase for most Indians. Given the high property prices, many prefer to go for loans. Home loans create a large cash flow issue in one’s financial plan for an extended period. This needs to be taken into account by reviewing one’s financial plan. You should also check your life insurance coverage when you go for large loans.
Education loans co-borrowed by parents for their kid’s higher education loans also act as a drain if the kid can’t get a job after education. The loans, though, need to be repaid. Such situations need to be built into the financial plans using periodic reviews.
Lifestyle diseases and life-threatening diseases
In a rush to earn and enjoy more, lifestyle diseases and health conditions visit us. Though a lot of preventive care is available, one can’t negate their chance of occurrence. They not only lead to a lot of trauma but also monetary implications. Reviewing one’s financial plan and buying adequate insurance covers for hospitalisation and critical illnesses is better.
Life-threatening diseases can put the financial plan upside down. The occurrence of one such condition in the family needs a review of a financial plan.