As a financial planner, I’ve had countless conversations with clients about the importance of regularly reviewing and updating their financial plans. It’s a topic that often comes up, but one that many people struggle with – knowing when the right time is to take a step back and re-evaluate their financial strategies.
In my experience, there’s no one-size-fits-all answer, as everyone’s financial situation and goals are unique. However, there are certain life events, changes, and milestones that can serve as clear signals that it may be time for a financial plan review. In this post, I’ll share some of the key indicators I look for, as well as tips on how to approach the process in a way that sets you up for long-term financial success.
When Should You Review Your Financial Plan?
Major Life Changes
One of the most obvious triggers for a financial plan review is a significant life event or transition. This could include getting married or divorced, having a child, buying a home, starting a new job, or experiencing the loss of a loved one. Any major change in your personal or professional circumstances has the potential to impact your financial needs and goals, so it’s important to re-evaluate your plan accordingly.
For example, let’s say you just got married. Combining finances with your spouse means you’ll need to revisit things like insurance coverage, retirement savings, and estate planning to ensure everything is properly aligned. Or if you recently had a baby, you may need to adjust your budget to account for the additional childcare expenses, update your life insurance, and start saving for college.
Shifts in the Economy or Market Conditions
Broader economic and market factors can also be a trigger for reviewing your financial plan. Periods of high inflation, rising interest rates, stock market volatility, or other macro-economic changes can affect your investments, cash flow, and overall financial health.
I often counsel my clients to pay close attention to the news and economic indicators, and to be prepared to make adjustments if necessary. For instance, if you have a significant portion of your portfolio in stocks and the market takes a nosedive, you may want to re-evaluate your asset allocation and risk tolerance. Or if interest rates rise substantially, it could be a good time to refinance your mortgage or make changes to your debt management strategy.
The key is to avoid getting caught off guard by these types of external factors. By staying proactive and vigilant, you can position yourself to weather any storms and capitalize on new opportunities as they arise.
Changing Goals or Priorities
Even if your life circumstances haven’t changed dramatically, it’s still a good idea to review your financial plan periodically to ensure it aligns with your evolving goals and priorities. Maybe your vision for retirement has shifted, or you’ve decided to start your own business. Perhaps you want to focus more on charitable giving or travel in the coming years.
Whatever the case may be, it’s important to make sure your financial strategies are keeping pace with your changing needs and aspirations. After all, a financial plan that made perfect sense five years ago may no longer be the best fit for where you are today.
Reaching Key Milestones
In addition to major life events and changes, there are also certain milestones that can serve as natural triggers for a financial plan review. For example, hitting a significant birthday (like 30, 40, 50, etc.), reaching a certain savings or net worth threshold, or nearing retirement age are all good times to take stock of your progress and make any necessary adjustments.
These milestones can be especially important when it comes to retirement planning. As you get closer to that next chapter of your life, you’ll want to make sure your investment allocation, withdrawal strategy, and other key elements of your plan are optimized for the transition.
Periodic Check-Ins
Even if none of the above scenarios apply, it’s generally a good idea to review your financial plan on a regular basis – say, once a year or every couple of years. This allows you to stay on top of things and make incremental changes as needed, rather than waiting for a major life event to force your hand.
During these periodic check-ins, you can review things like:
- Your current income, expenses, and cash flow
- The performance and allocation of your investment portfolio
- The adequacy of your emergency savings and insurance coverage
- Your progress towards short-term and long-term financial goals
- Any changes in your family situation, career, or lifestyle
By maintaining this proactive, ongoing approach, you can ensure your financial plan remains aligned with your evolving needs and aspirations. And should any significant changes occur in the meantime, you’ll be well-positioned to adapt quickly.
How to Approach a Financial Plan Review
Now that we’ve covered some of the key triggers for reviewing your financial plan, let’s talk about the process itself. Here are some tips to help you make the most of your review:
Start with Your Goals
Before diving into the nitty-gritty of your finances, it’s important to take a step back and revisit your overarching goals and priorities. What are you trying to achieve, both in the short-term and long-term? Are those goals still the same, or have they shifted in any way?
Clearly defining your objectives will help provide the framework for the rest of your financial plan review. It will ensure that any changes or adjustments you make are truly aligned with what you’re trying to accomplish.
Gather and Organize Your Financial Information
The next step is to gather all of the relevant financial documents and information you’ll need for the review process. This includes things like:
- Bank and investment account statements
- Retirement plan statements
- Insurance policies
- Mortgage and loan details
- Tax returns
- Estate planning documents
Having all of this information in one place will make it easier to get a comprehensive view of your current financial situation. It will also help you identify any gaps or areas that may need attention.
Assess Your Current Situation
With your goals and financial data in hand, you can then dive into analyzing your current situation. This might involve things like:
- Reviewing your income, expenses, and cash flow
- Evaluating the performance and asset allocation of your investment portfolio
- Checking the adequacy of your emergency savings and insurance coverage
- Calculating your net worth
- Projecting your retirement income and expenses
The key is to get a clear, objective understanding of where you’re at today, so you can identify any areas that may need to be addressed or optimized.
Identify Gaps and Opportunities
Based on your assessment, you can then start to pinpoint any gaps or opportunities within your financial plan. For example, you may discover that your current insurance coverage is inadequate, or that you’re falling short on your retirement savings goals.
Conversely, you might also identify new opportunities, like the ability to pay off debt faster, invest in a side hustle, or take advantage of tax-saving strategies. The important thing is to be open-minded and willing to make the necessary changes to get your plan back on track.
Develop an Action Plan
Once you’ve identified the key areas that need attention, the final step is to develop a clear action plan for addressing them. This might involve things like:
- Adjusting your investment portfolio
- Increasing your retirement plan contributions
- Refinancing your mortgage or other loans
- Reviewing and updating your insurance coverage
- Creating or revising your estate plan
- Budgeting for a major purchase or expense
The specifics will depend on your unique situation, but the goal is to walk away from the review process with a concrete set of next steps to help you move closer to your financial goals.
Conclusion
Reviewing and adjusting your financial plan is an essential part of maintaining long-term financial health and security. While it may not be the most exciting task, it’s one that can pay dividends in the form of increased savings, reduced debt, and greater peace of mind.
By staying attuned to the key triggers and milestones that signal it’s time for a review, and by approaching the process in a methodical, goal-oriented way, you can ensure that your financial plan continues to serve you well, even as your life and circumstances evolve.
So, is now the right time for you to take a closer look at your finances? I encourage you to do a quick self-assessment and see if any of the scenarios I outlined above apply to your situation. If so, don’t hesitate to dive in and get started. Your future self will thank you.
Frequently Asked Questions About Reviewing and Adjusting Your Financial Plan
1. How often should I review my financial plan?
It’s generally recommended to review your financial plan at least once a year, or whenever you experience a major life change, reach a significant milestone, or notice shifts in the economy or market conditions.
2. What documents do I need to gather for a financial plan review?
You should gather your bank and investment account statements, retirement plan statements, insurance policies, mortgage and loan details, tax returns, and estate planning documents to ensure a comprehensive review.
3. Can I review my financial plan on my own, or do I need a financial advisor?
While you can certainly review your financial plan on your own, working with a qualified financial advisor can provide valuable insights, expertise, and an objective perspective to help you make informed decisions.
4. How do I know if my goals and priorities have changed?
Take some time to reflect on what matters most to you currently and compare it to your original financial goals. If there are notable differences or shifts in your aspirations, it may be time to adjust your financial plan accordingly.
5. What should I do if I experience a major life event?
In the event of a major life change like marriage, divorce, having a child, or starting a new job, it’s crucial to revisit your financial plan to ensure it reflects your new circumstances and needs.
6. How can I stay informed about economic and market changes that may impact my financial plan?
Regularly reading financial news, following market trends, and staying in touch with your financial advisor can help you stay informed about economic and market shifts that could affect your financial strategies.
7. What are some common pitfalls to avoid during a financial plan review?
Avoiding emotional decision-making, neglecting to consider tax implications, failing to update beneficiaries, and overlooking estate planning are common pitfalls to steer clear of during a financial plan review.
8. Is it necessary to adjust my investment portfolio during a financial plan review?
Depending on changes in your goals, risk tolerance, or market conditions, adjusting your investment portfolio may be necessary to ensure it aligns with your current financial objectives and time horizon.
9. How can I track my progress after making adjustments to my financial plan?
Regularly monitoring your financial goals, tracking your spending and savings habits, reviewing investment performance, and staying engaged with your financial advisor can help you assess your progress post-adjustments.
10. What if I feel overwhelmed by the prospect of reviewing my financial plan?
If you feel overwhelmed by the prospect of reviewing your financial plan, consider breaking down the process into smaller, manageable steps, seeking guidance from a financial professional, or using online tools and resources to simplify the process.
