So you have worked out your personal financial plan either on your own or with a financial adviser. However, your personal finances change with time and how do you know that you may need to review your financial plan?
1. You Avoid Looking At Your Statements
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Do you have an awful feeling when you open your bank and credit card statements? Or do you just let the statements pile up in a corner of your house? This actually may not be due to laziness but rather a psychological effect of trying to avoid looking at the numbers because you are afraid of what the numbers will say.
It could be a sign that you know you are overspending and hence you are avoiding looking at the credit card statements. It could be that you are trying to ignore your brokerage statements because of some bad investments you made.
However, this attitude does not help and it is essential to take back control of your finances. The first step is to update your income statement as well as your net worth statement. You can track both your income and net worth statements easily with Dr Wealth. With the updated numbers, Dr Wealth will immediately give you a financial health assessment. With the assessment, you will know where your finances might have taken a dip and quickly work to rectify it.
2. You Lose Your Zest In Planning Your Financials
When you first start saving for your financial goals, you may be excited to see your account increase month after month giving you a sense of achievement. After some time, you may lose your enthusiasm as immediate expenses such as bills take centre stage instead. This may cause you to lose sight of your longer term financial goals. It is important to stop and check if you are still on track for your goals. If you are not, you may need to readjust your budget to put financial plan back in order. If you have trouble adjusting your budget, see 10 Tips to Reduce Your Expenses and Save More.
3. You Increased Your Lifestyle Costs After a Promotion or Pay Raise
In general, after receiving a promotion or pay raise most people will increase their lifestyle spending as they suddenly feel richer. While it is fine to splurge a small percentage of the increment, it is essential that you still continue to save bulk of the money. The reason is that most financial plans actually do account for income growth and hence if you do not save the incremental money, you may not be following your plan.
4. You Are Accumulating a Lot of Cash
Has your cash balance in your bank account been increasing? While it is a good indication of your budget, having significant of your investible assets in cash exposes you to inflation risks. Your money in your bank account will decrease in value over time due to inflation, hence it is important that you continue to invest your cash balance according to your financial plan.
5. It’s Been More Than a Year Since You Last Looked at Your Financial Plan
It is always prudent to review your financial plan as your personal finances do change over time. It is a good practice to review the entire financial plan at least annually. Less than 1 year may be too short a time to review the plan as your finances are unlikely to change that much.