A financial plan sets out the various stages you need to take to achieve your objectives, such as buying a house or saving for retirement. Though it is typically encouraged not to update your strategy continuously, timely evaluations are critical in responding to unexpected life changes. The changes in the portfolio will help you keep your plan in sync with your changing requirements and meet goals effortlessly.

Gaurav Goel, entrepreneur and SEBI-registered investment advisor, says, “A good financial plan includes a review of the plan itself every one to two years. There is a possibility of a change in the investor’s risk profile, which needs to be recaptured regularly and the portfolio readjusted accordingly. Any significant change in income levels, life events like medical emergencies, windfall gains, significant losses or evolving aspirations like philanthropy can change the risk profile. Hence, a financial plan needs a thorough re-look from time to time.”

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Here are 5 Scenarios When You Should Review Your Financial Plan:

1. Income Fluctuations
Changes in income can significantly impact your financial plan. Positive changes, like salary hikes or bonuses, are opportunities to strengthen your financial position by saving or investing more, rather than increasing spending. This habit can help build a solid financial foundation for the future.
On the other hand, adverse changes, such as job loss or reduced income, require you to reassess your budget and prioritise essential expenses. Adjusting your financial plan quickly in response to these changes helps maintain stability during uncertain times.

Chandralekha M R, Finance Content Creator and Founder of Dime, said, “Adapting your financial plan to changes in income involves boosting savings and investments when income increases, and tightening your budget and prioritizing essentials when income decreases, all while regularly updating your plan to stay on track with your goals.”

2. Large Expenses and Loans

Large expenses and loans can significantly impact your financial situation, making it crucial to review your financial plan. Unexpected costs, such as major medical bills or home purchases, often require you to take out loans, leading to new financial liabilities. Reviewing your plan helps you adjust your budget to prioritise loan repayments and manage expenses effectively, ensuring that your financial strategy remains aligned with your overall goals and long-term stability.

Chandralekha added, “Advanced financial planning techniques include debt restructuring, building a sinking fund, managing cash flow with an emergency fund, reallocating investments, and ensuring proper insurance coverage to integrate major expenses and loans effectively into your long-term strategy.”

3. Milestone Events

Major life events, such as marriage, the birth of a child, education expenses, and family milestones, necessitate a review of your financial plan. These events expand your financial responsibilities beyond yourself, requiring adjustments to account for your spouse, children, and family needs.
A review isn’t limited to investment alone. It also involves reassessing insurance coverage and ensuring your assets are protected. By reviewing your financial plan during these events, you can identify any gaps in your strategy and take corrective actions to secure your family’s financial future.

4. Evolving Aspiration

As your income grows, your financial aspirations may also evolve. For instance, you might initially save for a basic car, but after some time, you might be able to afford a bigger, costly vehicle. Regularly reviewing your financial plan as your income increases allows you to adjust your goals and plans accordingly. This process ensures you can maximise gains from your enhanced financial situation, whether achieving your goals sooner, expanding your aspirations, or utilising surplus money effectively.

5. Health Issues and Medical Expenses

Health issues and medical expenses can substantially impact your financial plan. Unexpected medical costs can strain your finances and disrupt your planned budget, whether from a sudden illness, chronic condition, or long-term treatment. Reviewing your financial plan in response to health-related expenses is crucial to ensure adequate insurance coverage, an emergency fund, and a strategy to manage these costs without derailing your overall financial stability. This proactive approach helps you maintain financial security and navigate health-related challenges more easily.