Why You Need to Update Your Financial Plan
“The Times They Are a-Changin’” Bob Dylan’s 1964 song is the headline for this discussion of why you need to keep updating your financial plan. What’s changing you ask? The rules and your situation. Two significant forces at work.
The US Congress, state legislatures, and the courts along with our friends at the IRS can alter the rules and therefore our assumptions on how much we’ll need to save towards retirement and other financial goals. In addition, we’ll need to be prepared for new situations, events, and needs that can arise like caregivers, lost jobs, fraud, mistakes, and other things like family expansion and emergencies.
I remember the first job I had after military retirement at age 40. My employer eliminated my position. I was out on the street with no idea of what I wanted to do if I wanted to stay in the beautiful town of Santa Barbara. We had to revise our family lifestyle and our goals. Four more times we switched jobs and careers. Twice we had to move. Goals and plans kept changing. We kept revising our financial plan.
Our most successful clients have a plan and work their plan. That means they keep track of their savings and how it is projected to grow each year and then look at what actually happens. Goals are altered by forces outside of their control and they know that a fresh look at all the elements that make up a financial plan need review every year or two is a vital action to stay on track. The top 20% or so even use their update to see how far they can exceed their savings amounts and maybe even reach financial independence early.
When we look back at 10 or 15 years of financial planning for a client and observe all the revisions that have been made, it amazes us how many times things become less complicated and the clients more focused on achieving their ultimate goals. Launching educated children and entering a secure retirement knowing they shouldn’t run out of money are the most frequent concentration points.
Financial planning isn’t just spreadsheets and balance sheets. It’s the consideration of dreams and meaningful experiences for family that last even beyond a certain lifetime. It’s no fun updating a financial plan unless you’re a big $50 million lottery winner. In fact, a CNBC report showed lottery winners are more likely to end up in bankruptcy than the average person.
What are the five rewards of continually updating a financial plan?
- Satisfaction of being on track or ahead of schedule
- Motivation to do better if you get behind on saving for goals
- Make financial decisions with more certainty since you can observe the moving parts
- Clarity of action needed to get ahead
- Ability to recognize roadblocks or curveballs and avoid big mistakes
In conclusion, avoiding big mistakes and keeping on track are the best reasons why you need to keep reviewing and updating your financial plan.