Having enough amount of money at the right time for what you intend to do is like a dream come true. Therefore tenants of personal finance talk about creation and execution of financial plan for financial well-being of an individual. What you plan today may not work next year, as your needs change, your cash-flow changes and sometimes environment around you changes.
As a result it necessitates 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 given by MoneyMindz, India’s First Online Financial Advisory Portal:
Change in income
In most employment contracts salary hike is an annual event. Also increase in salary need not necessarily lead to increase in expenses. In initial years, it may be the case as lifestyle inflation catches up. If you continue to rise, more incremental money earned is saved. It should be channelized into investments. It can be done if you are going to review your financial plan.
Linear growth of income for salaried individuals is a history. Many people have seen job losses, mid-career shifts and sabbaticals. Therefore financial plans need to be reviewed in such lean periods too.
Do you aspire more?
You should know that financial plan comprises financial goals that define one’s aspirations and the planned strategy to achieve those. It can be called as peer pressure or just plain higher aspirations, individuals end up spending more and more. Let us take an example; one may plan to buy a hatchback and start saving for the down payment. As his income grows he may want to opt for a sedan over a hatchback. It means higher income has led to better lifestyle and hence more savings need to be channelized into investments.
It is never wrong to aspire more, if you are willing to fund it well in advance by increasing your investments. If you invest in mutual funds using systematic investment plan, then it is better to increase your SIP investment at regular interval. If a person starts s 1000 SIP in a mutual fund with an expected return of 12%, then over 10 years he will take home Rs 221930. If you increase your SIP just by 10% each year, then you will take home Rs326889.
A birth of a child, marriage, kids’ education and post-graduate education, their marriage and so on are some of the key milestone events in many of our lives. Such events call for a review in your financial plan, because then it’s not just you who you are planning. You are required to plan for your spouse, your kids, your family.
It’s not just about investments but it’s also about your insurance needs and the need to secure your investments by making a Will. Therefore, financial plan review helps you identify gaps if any and take corrective actions. If you purchase an individual health insurance cover on a shoestring budget, it is time to go for a larger family floater health insurance cover if you are getting married.
Large purchases and loans
For most Indians home purchase is typically a large purchase. The high property prices, many prefer to go for loans. Home loans create a large cash flow issue in one’s financial plan for a long period of time. This shall be taken into account by reviewing one’s financial plan. You need to review your life insurance covers when you go for large loans.
We get to see that education loans are 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. Although loans need to be repaired. Such type of situations needs to be built into the financial plans by means of periodic reviews.
Lifestyle disease and life-threatening diseases
In order to earn more and enjoy more, lifestyle diseases and health conditions come visiting us. Even though a lot of preventive care is available, one can’t negate the chance of occurrence of them. That not only led to a lot of trauma but also monetary implications. It is always better to review one’s financial plan and buy adequate insurance covers that pay for critical illness and hospitalization.
Therefore life-threatening diseases can put the financial plan upside down. Occurrence of one such condition in the family needs review of financial plan.
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