Financial plan is an individual’s aspirations or dreams along with the roadmap to achieve them. Each individual’s dreams of own house, car, foreign vacation or early retirement. To achieve these dreams, you require robust implementation and unmoving determination. Therefore, when you think about financial planning, words like change, review or flexibility can do more harm than good, hence are not advisable.
As true as it may seem, there are certain junctures in life which require you to rethink about your financial plan and act accordingly. Let us check out five such junctures when you should review your financial plans.
Increase in number of dependents: Unless you start you financial planning in the late 30s or early 40s, there remain no dependents apart from your parents. Situation changes quite drastically after marriage, as expenses rise along with the number of dependents. As the number of dependents increase, financial planning needs a rejig in order to accommodate the additional expenses. For example, if financial plan is of buying a hatchback, it may deem insufficient after marriage. If marriage can change things drastically, parenthood will turn the whole world inside out. A child also increases the cost of living, which requires a serious thought with regards changes in savings.
Tax status: Since financial planning begins at an early age, tax saving may not be on the agenda. However, as we grow older, our income increases resulting into higher tax reduction. It is pertinent to note that as the income increases, tax expense increases as well and thus lack of tax planning could result into losing of substantial amount of money unnecessarily. So, once your tax slabs are changed, you should re-align your investments to save tax and at the same time achieve your financial objective in desired time. Tax-saving instruments have lock-in period. Hence, the same must also be taken into consideration in addition to the existing limits provided by the Income Tax act. Any amount invested over the limit is futile.
Change in life condition: Although medical science has improved a lot since the last decade, human beings are susceptible to several life-threatening diseases and illnesses. Additionally, there is always a risk of permanent or partial disability due to accidents. Therefore, any change in life condition can render certain goals useless. For example, any savings towards foreign travel can become futile if we suffer from a life-threatening disease. In such case it is advisable to discard that financial goal and rather use it as an emergency fund or payment of short-term liabilities.
Preparing for extra comfortable future: As stated before, our income keeps changing till the time we retire. We always dream or aspire as per our income, however we may be in a better position at the time of its achievement. For example, at the time of saving for a car we may dream for a hatchback, but when the time comes to buy it, we may be able to afford a sedan. Therefore, a financial review is necessary at every instance of rise in income. This way we may achieve our financial goals earlier or surpass our aspirations or simply have surplus.
Unplanned loans: While planning for the future, we often have set assumptions in our mind with regards to how our life is going to pan out. However, life is full of uncertainties, therefore every individual needs to adapt to the circumstances. Situations such as sudden medical expenditure of a dependent or job loss or even an unplanned purchase of house may cause disruption in financial planning. To cater such uncertainties, you may have to turn to availing unplanned loan and create liabilities in to our portfolio. As soon as liabilities occur, EMIs take priority over savings and then comes the time to alter our financial plans. It is better to remain debt-free, but not at the cost of savings. Therefore, prioritise closure of high interest loans and build an emergency fund for emergencies.
