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How to Know When It’s Time to Revise Your Financial Plan

How to Know When It’s Time to Revise Your Financial Plan

| October 26, 2023

Life is full of changes. Some are expected, while others are surprises. Regardless of whether you anticipated it or not, a change in your personal or financial circumstances may require you to reevaluate and revise your financial plan.

A thorough financial plan is a living document that evolves as your goals, time horizon, and risk tolerance change. Here is some guidance on deciding when it’s time to revisit and revise your financial plan.

Changes in Personal Circumstances

You should reexamine your financial plan any time you go through a major life event, such as the following: 

  • Marriage
  • Divorce
  • Death of a spouse
  • Birth of a child
  • Paying for college
  • Retirement
  • Changing careers
  • Starting a business

These life events all have significant financial implications. 

Your financial plan sets goals based on your current personal situation. When that situation changes, your plan probably needs to be updated.

For example, after getting married, you might update your beneficiaries, request higher insurance coverage, and revise your savings goals. 

Having a child could mean adjusting your budget, opening a 529 to save for education, and revisiting your estate plan. Retirement or a career change could require a reassessment of your income, expenses, and investment strategy.

Shifts in Financial Goals

Your financial goals will more than likely evolve over time. What seemed important to you at the beginning of your career may be replaced by new priorities later in life. 

Over the years, your family and lifestyle needs change, requiring you to revise your budget and savings strategies. For example, many people focus on saving for a down payment on a house in their 20s and 30s. After they become homeowners and move forward in their careers, they switch their focus to saving for retirement.

Go back and review your current financial plan and determine whether it’s helping you meet your most important short- and long-term financial goals. If it isn’t, that’s a clear sign you need to revise your financial plan.

Changes in Risk Tolerance

Your risk tolerance may also change as you get older and your priorities shift. Usually, younger investors have higher risk appetites and accept more volatility in their portfolios. But as you near retirement, preserving the capital you’ve gained may become more important to you than growth.

Other life changes can influence your risk tolerance as well. For example, having a child may make you more cautious. Going through a divorce could call for a temporarily aggressive approach to managing solo finances.

By reassessing your risk tolerance every so often, you can ensure your investments match it.

Low Investment Performance

You should review your investment performance at least yearly to determine whether you are reaching the returns needed to meet your financial goals.

Compare your performance to appropriate benchmarks, like market indexes. If your investments consistently underperform their benchmarks by a significant margin, it may be time to make some changes. Underperformance could also signal the need for a different investment strategy or changes to portfolio allocation.

Changes in Tax Laws

Tax law changes can influence investments, estate planning, retirement accounts, and other important elements of your financial plan. It’s important to review your finances after any significant tax reforms to see how the changes could affect your investing strategy or retirement income.

Unexpected Funds

Sometimes, life brings pleasant surprises like unexpected funds. Perhaps you’ve received an inheritance, a large bonus, an insurance settlement, or another windfall.

While it’s exciting, this influx of funds should warrant a review of your financial plan. You should carefully consider how to best put the money to work for your goals. Options could include:

  • Paying down debt
  • Boosting retirement savings
  • Funding education
  • Investing for your future

Resist the temptation to splurge on wants until you’ve updated your plan to allocate the windfall funds strategically. You should also account for any tax implications that the unexpected funds may have.

Revising Your Financial Plan With Expert Help

Periodically revising your financial plan ensures it will continue to move you toward your most important financial goals. Major life events, shifts in priorities, tax law changes, and unexpected windfalls are all reasons to review your plan and make any needed updates. Don’t let an outdated plan hold you back from achieving your goals.

Now that you know the traits to look for when revising your financial plan, we invite you to contact us to schedule a no-obligation discovery meeting. We recommend a thorough financial review every year, and meeting with us can help ensure your financial strategy stays tailored to your needs over time.