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There have been cases in which family opt for financial planning but ignore to review at regular intervals as recommended by financial planners. They assume financial planning is one time activity and can achieve the set goals by following points discussed in comprehensive report. However, it’s not that easy job for common-man. Financial planning requires determination, patience, risk taking capabilities, understanding the products, achieving set goals on timely manner, re-shuffle portfolio, etc.
You grow in your career path and pass through different stages in your life for example, get married, buy a house, raising a family, etc. Your life goals and financial status keeps on changing regularly. So, review of financial planning i.e. 2 to 4 times in a year is appreciated.
Take an appointment with your financial planner at start of new financial year and understand whether your financial plan is moving in right direction as you determined. If financial plan is weak and you facing difficulties to reach set goals then make some changes in your plan with financial planner to suit your lifestyle and aim to achieve set goals smoothly.
Here are 7 points you must consider while reviewing your financial plan:
1. Checklist of goals
Goals set are considered as milestones in life. So, keep a check on it to see if your savings and investments are moving in right direction to achieve them in given timeframe. Have a clear vision of goals with cost to incur and in certain time period. If such information is not perfect then entire exercise of planning is on weak pillars which will fall like a pack of cards in future. While reviewing you can add new goals if you are determine to achieve. Discuss with planner is it practical to add new goal at this time? , How this new goal can be achieved?, How much expense will be incurred to achieve new goal, etc.
2. Go and check your cash flow
Your cash flow is considered as the spine of a financial plan. It’s important to keep a watch on flow of income and expenses regularly. Ideally, you should maintain a monthly cash flow to review yourself and discuss with planner in meetings. Cash flow is stressed if there is unexpected expense (outflow of cash) during the month affecting savings and investments. There could be appraisal in your income which will lead to increase in cash inflow. You can utilize the raise in inflow of cash towards achieving new goals. Discuss with planner in both the scenarios then take ideal steps as suggested.
3. Analyse your insurance requirement
We often come across people who are not insured as per their requirements. Life insurance and health insurance are vital to take care of rising medical costs in today’s scenario. You need to review your needs and cover of insurance policies. Analyse whether insurance policies takes care of any debts and monthly expenses of family after your uncertain death. After analysing with planner if it’s concluded that you are not adequately insured then look out for best suitable insurance policies to increase your sum assurance and protect your family. In market there are term insurance policies available which increase the sum assurance every year by around 10% so opt for such policies which will automatically take care of rising inflation costs while making a plan.
4. Review performance of investments
It’s essential to know whether your investments are giving expected returns and performing well over the period. Analyse performance of your asset allocation at regular intervals. Your goals are linked with performance of this investment product so if they fail to deliver desired results then your timeframe to achieve these goals could be postponed. Also, needs and desires keep changing at regular intervals. So, keep an eye on performance of your investments and add new products or increase contribution to current investments time-to-time. In case, there are investment products underperforming from long time then discuss with planner while reviewing and plan to exit at right time without incurring heavy losses.
5. Updating database with correct details of products
Having a database with details on tenure of investment products, insurance premium dates, debit card, credit card, etc is very crucial. It helps to renew the fixed deposits at the right time, exit from mutual fund scheme/post office savings, or switching to different scheme, etc. Having information on insurance premium dates is also very useful. You can pay premium on time and your policy doesn’t lapse when it’s required the most. Also, check whether details of your bank account, PAN card number, insurance policies, etc are entered correctly in your database for your quick reference at any given time.
6. Tax planning
Most people generally plan for tax between Jan to Mar quarter which is an immoral practice. You need to start on tax planning from start of new financial year with recommendation from planner. There is no need to have a last minute rush and add insurance policies / ELSS schemes in your portfolio which are not required. There are different avenue to save tax which can be considered if you plan for tax early in the year.
7. Make sure you have contingent fund
Ideally, you require six months of contingent fund to take care of family expenses. This money would help if there is loss of job, unexpected incidents having financial implications, etc. See to it sufficient money is invested in liquid funds or available in your savings account to take care of uncertain expenses.
On daily basis you might be giving specific time to yourself for exercise, to watch your favorite movie / television serial, to eat healthy food etc. You know this are necessities to keep yourself detach from stress in life and stay fit. Same way, giving some amount of your time to managing your personal finance and reviewing financial plan at regular intervals will give you hassle free sleep at night. Over the years, your financial life as well will be healthy and fit. So, it’s high time to take an action towards it and review financial plan regularly.
Source: InvestmentYogi is one of the leading personal finance websites in India
