Once you’ve made a financial plan, that’s not the end of the process. Regularly reviewing it in the context of your current situation is a must.
When you think back to what your priorities or aspirations were just five years ago, they’ve probably changed. Likewise, your financial situation may be different too. Not coming back to your financial plan means you could be making decisions based on data, suggestions and assumptions that are now outdated. To keep getting the most out of your money and ensuring it supports your goals, a long-term approach is needed.
Here are seven reasons to regularly review your finances.
1. Stay on track for your long-term goals
When you started financial planning, you’ll have thought about long-term goals. Some of these may have been decades in the future. Day-to-day these goals aren’t likely to be areas you think about unless you’re making significant decisions. However, your day-to-day habits can have an impact on them.
Reviewing your finances gives you an opportunity to ensure you’re still on track to achieve them. You may find that you’ll get there sooner, or you can surpass your original target. On the other hand, if you find you’re lagging behind, you have the chance to take steps to rectify this. Typically, the earlier you recognise you’re not on track, the easier it is to remedy.
2. Reflect big life changes
Throughout life, we’ll experience big life changes. While some of these are planned, others may be entirely unexpected. Reviewing your finances allows you to factor these into your wider plan.
Having children or getting divorced, for example, may mean that your estate planning needs to drastically change. Receiving an inheritance could mean you’re able to retire sooner. If a life event has altered your finances or priorities, it’s a good idea to go back to your plan and adapt it accordingly.
3. Your aspirations may change
As you go through life, your aspirations and goals undoubtedly change. At one point, you may have planned to work until State Pension age. But as you’ve progressed through your career, retiring a few years early or working part-time might be a more attractive option.
Your aspirations should be the driving force behind your financial plan. As such, when they change, it should too. Your finances play a role in what’s achievable, reviewing them can help you understand whether your new goals are realistic. It may also be necessary to adjust how your assets are organised or how they’re accessed to reflect new priorities.
4. Cashflow modelling data will need to be updated
Cashflow modelling is an excellent way to visualise and understand how your income and wealth will change over the years. But it’s only as good as the data used. While it’s an invaluable tool that can provide you with an accurate picture of your wealth and how it can change, it does need to be frequently updated.
If you’re considering making lifestyle changes, cashflow modelling can give you the confidence needed to go ahead. A visual representation of your finances can give you a far better understanding of how your income and assets will be affected by the decisions you make.
5. Give yourself peace of mind
Finances are one of the biggest causes of worry and stress. Financial planning can help alleviate some of the concerns you may have and give you the confidence needed to proceed with plans. From ensuring you have a stable income during retirement to providing your family with financial security, reviewing your finances can help to give you peace of mind. You’ll know you’re on the right path for your overall objectives even if the unexpected happens.
6. Reassess the level of risk you’re taking
Risk can provide you with opportunities to grow your wealth but, of course, your investments can decrease in value too. Throughout your life, you’re likely to have different attitudes to risk. Perhaps your tolerance for risk is high during your 20s, decreasing as you create stability to raise a family, and increasing again when you’re financially secure. Reviewing the current level of risk your assets are exposed to and whether your attitude has changed is important.
Generally speaking, you’re in a better position to take greater levels of risk when you’re young. Many people choose to decrease the level of volatility they’re exposed to as they approach retirement age. However, increasing longevity means an increasing number of pensioners are maintaining higher levels of risk. Contact us to discuss your risk tolerance and how this is reflected in your portfolio.
7. Reflect legislation changes
The government frequently updates legislation that affects personal finance. If it’s been a few years since you’ve reviewed your financial plan, it may not be as efficient as it was originally.
Pension Freedoms that were introduced in 2015 may mean the most efficient way to take a retirement income has changed considerably. In 2016, the Individual Savings Account (ISA) limit increased to £20,000, allowing you to save more tax-free. And this year, it was announced that the Personal Allowance and Higher Rate tax band will increase from April 2019. To make the most of your assets, your financial plan should take legislative changes into account.
We advise that financial plans are revisited at least annually and following big life events. This helps to ensure that your finances continue to match goals and your current situation. To understand your financial health and what it means for your aspirations, please contact us.