16/04/2020
Financial reviews:
Today, almost everyone gets a dental check done at regular intervals. Yes, it is extremely important to maintain your teeth. Most of us also get our personal assets (such as car, heating system, refrigerator etc.) serviced at least once in a year in order to avoid them getting out of use. Well, but what many forget is that the same principle applies to our finances as well. Without a timely review of your finances, you are most probably bidding a goodbye to your financial goals!
During a financial crisis, the most important thing to be is remain calm. When your pension or investment portfolio drop by 30% or even 40% the first thing most people do is panic. Unless you need your money in a short time the markets will recover. The only question is how quickly you will get to your original investment before the crisis.
When there is a financial crisis, this is the time to review your portfolios and make the most of the market downturn.
Below are other reasons why a regular financial review is important:
Achievable Goals: Over time, your financial objectives change as you may change jobs, get married, start a family or even change countries. Therefore, your financial objectives will change. This needs to be reviewed. When people change jobs their pension also changes, so this may have an impact on your retirement goals.
• Contingencies and Expenses: Any kind of large expense (car maintenance, boiler replacement etc…) may burn a big hole in your monthly savings, especially if no provisions are made in your financial plan for such contingencies.
• Number of dependents: Change in marital status, birth of a child or the death of a loved one can largely impact cash flows and thereby affect your financial plans. For example, if your family is growing you will need to raise your budget for the holidays that you enjoy going on. Also, it is important to write a will and select nominees for your assets in order to avoid any disputes after you. In case there is a change in your family or beneficiaries, the same should be reflected in your will as well.
• Change in tax status: From the time you constructed your financial plan and till now, there could have been change(s) in the income tax laws in the country or the amount of income you earn. This might result in you falling in a different tax bracket and thus paying tax at a higher or lower rate. In such circumstances, you will need to revise your financial plans in order to plan your investments and expenses efficiently to reduce the tax liability. For example, if you fall in the highest tax bracket currently, then it would be sensible to undertake your tax planning activity prudently in order to optimally save tax, which enable you plan for your financial goals efficiently.
• New goals: Priorities change over a period of time. For example, when you are in early 20s, your priorities would include going for a holiday every half year and spending heavily on your lifestyle etc. But your spending habits and goals would change once you have kids and have a family to support. Similarly, you might have new goals and other added responsibilities apart from existing ones which may not be updated in your old financial plan. New strategies and investments might be needed to be framed in the plan to meet these
