Is financial planning a one-time activity?
Once the financial plan is created, do you need to continue your relationship with your financial planner?
Will the financial plan which you created in your early life, hold good till your retirement?
Do you need to handhold with your financial planner till you achieve all your financial goals?
The answers to all these questions will be unfolded somewhere in this article.
Changes and Deviation:
When you create a financial plan, you create it with some assumption. One of the assumptions may be your increment rate. Say you have assumed your salary increment rate as 12%. You may get only 10% increment in one year and 15% increment in another year. This is a change and a deviation from your assumption.
One of your financial goals may be to buy a property at the end of 5th year. Though you have planned to buy the property at the end of 5th year, you may locate a very good property at the end of 4th year itself. You don’t want to miss it. You may want to prepone your financial goal. At times, even after the 5th year, you may not be able to locate a good property. So you may want to postpone your goal for one more year. Again, this is a change and deviation from our original assumption.
In between, you may want to include a goal, remove a goal or modify a goal.
Relevance of the Financial Plan:
When you create a financial plan, it will be relevant to you 100%. At the end of one year, because of the changes and deviations as mentioned above, the financial plan created at the beginning of the year may be relevant to you only by 70%. At the end of 3rd year, it may be relevant to you only by 30%.
A workable and achievable financial plan needs to accommodate the changes and control the deviations. To accommodate the changes and control the deviations, doing periodical financial plan review is important. Periodical financial plan review only makes the financial plan workable and achievable. Financial plan review makes the plan up-to-date and keeps it relevant.
Financial Planning is not a one-time activity. It is a continuous process. You should have a long-term relationship with your financial planner. A professional financial planner can handhold with you during your journey towards financial goals. You need to periodically check the financial plan is still on track, even after the changes in the circumstances. If it is not on the track, then how do you bring it back to the track?
Also sitting or just standing on the right track will not take you to the destination. On the right track you need to run at the right speed to reach the destination at the right time. All these things need to be monitored frequently to check our progress. This monitoring becomes possible by doing periodical reviews on your financial plan.
Periodicity of Financial Plan Review:
The next logical question is how frequently we need to do the financial planning review. Generally, once in 6 months we need to do a review. If the situation demands, then we can go up to 4 reviews in a year.
Who initiates the review?
The Financial Planner or the client? It depends. Financial Planner will initiate the review process once in 6 months to check things are going as planned or not. As a client, you may initiate financial planning review, when circumstances at your end changes like, you get an increment or promotion, the demise of one your dependents. During these kinds of situations, you need to come forward and initiate the financial planning review.
You need to work out financial planning reviews periodically, then only the financial plan will work out for you.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at firstname.lastname@example.org.