Financial planning is the key element to ensure that you are financially secure throughout your life. The financial plan is usually designed in a way so that a person can meet their investment goals within the desired timeframe. However, life is unpredictable. One cannot know what the next moment will be like. For example, you may lose your job or receive a significant promotion.All these factors majorly impact your financial plan.
According to such factors, you might need to make changes in order to keep your plan relevant and effective. Let’s look at five risks which you might face during planning your personal finance.
Alterations in financial goals
As the age of the person keeps growing, the outlook towards money keeps on changing. You will tend to develop different goals and priorities when you are in different age brackets. For instance, when you are in your late 20s, you may think about saving money for properties and marriage. By the time you grow old, you may consider savings for child upbringing. Moreover, you should also map from the beginning of your earning years till your retirement. Also, it is not just about the investment but it is about the insurance needs too. By buying insurance cover now, you can move forward for the larger family floater health insurance coverage if you are married. Thus, the investment and financial strategies need to be reviewed periodically and updated to reflect the changing goals.
Change in financial conditions
If you are considering a loan for a large purchase such as a home or property, it is crucial to look after the financial plan. This is because you will be responsible for loan EMIs. In addition, loans bring liability. However, as the EMI begins, it is important for you to revisit your financial plan to determine the length of setting another goal as your financial situation changes as your expenses rise.
Variation in your risk profile
Changes in risk profile depends upon a combination of factors such as age, income and expenses. Changes in risk profile must be accounted for in the financial plan by the help of a review to make appropriate changes in the asset allocation and investments aligned to every goal. Along with life changes, the risk profile also changes.
Income
Income also plays as a key risk in financial planning. Other major events such as promotion, job change, job loss, early retirement, etc. may come your way due to drastic change in income. Many people suffered job loss, mid-career adjustments and other consequences due to pandemic. You should review the financial plan in such tough times too. When your income plummets due to loss of work, the compromise must be made in specific goals. You may need to decrease your investment during the challenging phase. Such instances necessitates a review of the financial plan.
Unpredictable events
Events such as unforeseen expenses for which you might be unprepared financially. These could be layoffs, medical emergencies, unexpected expenses such as renovation, car-repair, inheritance,etc.
Therefore, it is really crucial to note that merely creating a financial plan will not give you a helping hand in attaining financial stability. So, you should review your financial periodically which will lead you to reach the desired financial goals and maintain investments.
(The writer, Prashant Sawant is the co-founder of Catalyst Wealth)
