Adapt your financial plan for life events such as dependents, taxes, loans, health, and income changes to stay on track with your goals.
Every objective requires planning but to achieve any objective, we require perseverance and patience. Planning may be the easiest part in any objective but implementation is what makes you reach to any objective. Financial plan is nothing but 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 5 such junctures, when you should review your financial plans.
1. 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. In addition to that the member will also be required to be taken into consideration with regards to future planning. For example, if financial plan is of buying a hatch back, it may deem insufficient after marriage. If marriage can change things drastically, becoming a father or mother will turn the whole world inside out. A child not only increase the number of dependent but also increase the cost of living which shall require a serious thought with regards changes in savings.
2. Tax status:
Financial planning usually embarks upon savings for any particular objective. These objectives may not necessarily save tax upon investment. Since the financial planning begins at an early age, tax savings may not be on the agenda, however as we grow old, our income also increase resulting into attraction of higher tax each year. It is pertinent to note that as the income increases tax expense increases 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 in order to save tax and at the same time arrange them in line to achieve your financial objective in desired time. Tax savings instruments possess certain amount of 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 and above the limits is futile.
3. 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 remains full of uncertainties, therefore every individual needs to adapt to all the circumstances seen or unseen. Situations such as sudden medical expenditure of dependent or loss of job or even an unplanned purchase of house may cause disruption in every financial planning. In order to cater such uncertainties, we may have to turn to availing unplanned loan and create liabilities in to our portfolio. As soon as liabilities occur, EMIs start taking priority over savings and then comes the time to alter our financial plans. It is always best to remain debt free however not at the cost of savings, therefore prioritise closure of high interest loans and build an emergency fund to cater future emergencies.
4. Change in life condition:
Although medical science has improved a lot since the last decade, life remains subject to risky diseases such as cancer, paralysis etc. In addition to that there is always a risk of permanent or partial disability in case of occurrence of any accidents. Therefore, any change in the life condition can make certain life goals useless. For example, any savings toward 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.
5. Greater income, greater aspiration or simply preparing for extra comfortable future:
As stated many times, our income keeps on rising from the beginning of our investment till the time we retire. Considering realistic dreaming, 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 hatch back, but at time when we reach to achieve 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 over and above our dreams.
Every material event seen or unseen affect our financial planning in positive or negative manner. Though implementation of financial planning requires determination, the strategy should not be rigid enough to digest the uncertainties. Therefore, every financial planning should be reviewed and revisited at each important life events.
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