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Financial Planning
Home›Financial Planning›7 Ways You Can Adjust Your Financial Planning Annually

7 Ways You Can Adjust Your Financial Planning Annually

By WiserAdvisor Insights
December 2, 2020
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7 Ways You Can Adjust Your Financial Planning Annually

Last Modified on December 2, 2020

A pivotal piece of learning from the 2020 COVID-19 pandemic was that one must be prepared for any eventuality. Financially challenging times are particularly hard for people who believe in the concept of living from one paycheck to another, without any major savings. While most people long for financial freedom, not many realize the importance of savings and investments until they face a crisis. However, with a strategic plan in place and periodic adjustments, you can come one step closer towards achieving financial stability.

Here are some things that you need to take care of for a financially secure future:

1. Start by Re-defining your Goals 

The first step towards your annual financial planning is to define a goal that you are trying to achieve. Start by thinking about your short-term and long-term goals. These could include buying a house, wanting to travel, or retiring early. Your wants are bound to change with time. Take these changes into account while devising a new plan. Once you know your goals, the next step would be to find a way to achieve them. See if your income aligns with the things that you have in your mind. If you find that your earnings are not enough to cover your wants, you might have to make some hard choices, like cutting back on your monthly expenses, reducing debt, etc.

2. Track your Cash Flow

The next task is to analyze your money. It is important to know how much you earn and how much you spend, to have a sense of your monthly cash flow. You can start by determining how much you spend on your utilities, groceries, entertainment, or your child’s education, amongst other things. Next, you can set up a monthly budget for yourself. This will help you save for your goals and give you a chance to cut back on non-essential expenses. Even small bills of $5 – $10 can often go unnoticed. But if you have a system to analyze your budget, you can avoid mismanagement and be in control of your expenditure.

3. Understand that Time is Money

Inflation is one of the biggest destroyers of the value of money. Rising prices can hamper your ability to buy certain commodities in the future. Therefore, it helps to plan for your goals in the context of time. The prices of goods and services are likely to increase in the coming years. A house that costs $200,000 today, can cost $400,000 after a few years. Hence, while setting targets, remember to always keep some room for inflation.

Investment in equity, stocks, bonds, and retirement accounts can be an effective way to tackle rising costs. This is important because you not only save but also compound your money. Starting early has its advantages too. If you invest in your 20s, the maturity benefit that you will receive after 30-40 years will be a lot more than if you invest in your 30s or 40s. Those who invest early learn money management and are less likely to have financial issues in the later stages of life.

4. Try for a Diversified Portfolio

Once you start investing, it is hard to see your investment going up one day and down the next. The volatility can be worse if you have only invested in one asset class. When the market is volatile, you may withdraw your money and end up with major potential losses. It is more beneficial to maintain diversity with stocks, bonds, precious metals, real estate, and other assets that fit your risk tolerance.

As every investor wishes to reduce these risks, you can use the financial advisor directory to find an advisor who can help you create a well-diversified portfolio.

5. Be Responsible for your Equated Monthly Instalments (EMIs)

You need to know the financial obligations that you carry right now or are likely to accumulate in the future. It is hard to start a secure financial journey with debt. As a rule of thumb, try to pay off your loan repayments before you retire. It also helps to be patient as you might have to minimize your other expenditure. You can use an annual financial planning review to drop your credit card expenses or to assess other loan payments. Start by creating a strategy, and with time, you can be entirely debt-free.

6. Think about your Family

As a sole breadwinner, you can be responsible for your loved ones, such as your spouse or children. Therefore, a comprehensive financial plan requires safety measures such as insurance. Life and health insurance plans can help you in your hour of need and provide you with the necessary funds to overcome tough situations. In addition to this, having an estate plan is also important. A will can ensure that your assets are distributed to their rightful heirs. You can also consider setting up a trust in the case of minor children or kids with special needs.

7. Assess When and How to Retire

Retirement goals can be different for different people. A retiree who wants to own a big house will have different financial needs than a retiree who wants to downsize to a smaller property. In both cases, it is crucial to calculate the funds required for your retirement expenditure. Writing down your current expenses like food, housing, and other leisure activities can be a good way to start. The costs of your life and health insurance are also substantial to assess your retirement budget. You will also need to account for inflation.

If you are someone who needs at least 30-40 years to build savings, traditional retirement can be ideal for you. As you have enough time in hand, you can focus on your short-term goals like buying a car or taking a dream vacation. Both your savings and your current expenses can go hand in hand without downsizing any other expense. On the other hand, if your goal is to retire early, you may need to adopt some drastic measures. The ‘FIRE’ movement or financial independence, retire early is for people who wish to retire in their 40s. In order to achieve such a goal, you may have to save at least 50% of your annual income for the future. FIRE is built on two principles – the first is to increase your salary, and the other is to lower your expenses.

To Sum it Up

Adjusting your financial plan annually has become more significant in unpredictable times like during the COVID-19 pandemic. Figuring out a suitable plan, and having a simple rule for savings can increase your chances of profits. However, as your life evolves, goals can also change, and so can your financial plans. It is normal to be confused about where you are and where you want to be. Revising your plans periodically can be one way to deal with this.

Moreover, to ensure that you are in the right place, you can also reach out to a financial advisor for personal financial guidance.

TagsCash FlowDiversified PortfolioEMIsfinancial planningGoalsInflation
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WiserAdvisor Insights

WiserAdvisor Insights

A team of dedicated writers, editors and finance specialists sharing their insights, expertise and industry knowledge to help individuals live their best financial life and reach their personal financial goals. We believe that there is no place for fear in anyone's financial future and that each individual should have easy access to credible financial advice.

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