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The Importance of Regularly Updating Your Financial Plan
Author: Joel Baretto, CFP®
March 27, 2024
Reinforcing your commitment to your financial objectives is an excellent way to embark on the new year. It is important to review and update your financial plan at least once a year to ensure you are on track to meet your financial goals. We advocate for ensuring progress toward your goals by evaluating their impact on every aspect of your financial plan and making necessary updates. This includes the following considerations:
Account for life events
A critical rationale for consistently updating your financial plan is to guarantee its alignment with your evolving needs as your life undergoes changes. Significant life events, like marriage, divorce, the arrival of a new baby, loss of a loved one, or a career change, warrant collaboration with your wealth manager to ensure that these changes are appropriately incorporated into all facets of your financial plan.
Update your goals
The goals you have today might differ from those of a year ago. It’s possible you’ve achieved success in saving for a home down payment and made the purchase, or that your son has graduated college, eliminating the need to plan for that expense. Alternatively, changes in circumstances, such as a skiing injury, might have shifted your priorities away from pursuing a ski condo. Whatever alterations have taken place in your goals over the past year, it’s essential to integrate them into your financial plan.
Minimize your taxes
Engaging in proactive tax planning can yield substantial savings over time, underscoring the importance of routinely reassessing your tax planning strategies. If you are a client of Abacus Wealth International, your wealth manager consistently evaluates your portfolio’s tax efficiency and makes necessary adjustments to mitigate tax liabilities. Nonetheless, it remains crucial for you to periodically review and confirm that you are capitalizing on all available tax planning strategies.
Check in on your investments
During the initial establishment of your portfolio’s asset allocation, you and your wealth manager meticulously selected a blend of investments aimed at optimizing the likelihood of attaining your financial objectives.
Regularly rebalancing your portfolio, either to its original or an adjusted asset allocation, is crucial. Rebalancing involves selling off investments that have outperformed and reinvesting in those that have underperformed, aligning with your target allocation. While this might seem counterintuitive, it serves as a risk management strategy, preventing your allocation from straying too far from your desired investment ranges. This proactive approach safeguards against the dominance of one asset type in your portfolio, mitigating the risk of excessive exposure.
Retirement readiness
Strategizing for retirement constitutes a pivotal objective at any life stage, with early initiation yielding enhanced benefits upon retirement. During the evaluation of your financial plan, it is imperative to assess the headway made towards your retirement goals. If your financial circumstances permit, consider engaging in discussions with your wealth manager to explore the potential augmentation or maximization of contributions to your 401(k) and/or IRA.
Prepare for emergencies
If you haven’t established an emergency fund, it’s advisable to initiate one promptly. Typically, aiming for at least three to six months’ worth of expenses reserved in a readily accessible account is prudent for emergency purposes. If you already have an emergency fund but have recently tapped into it, prioritizing the replenishment of this fund to reach your desired level is essential.
Provide security for your loved ones
Insurance and estate planning constitute integral elements of a comprehensive financial strategy. The imperative extends beyond wealth accumulation; safeguarding one’s assets is equally crucial. Collaborate with your wealth manager to verify that your insurance policies align with your evolving financial objectives. Beyond conventional policies like medical, homeowners, and auto insurance, recent life changes may necessitate additional coverage, including:
- Liability insurance
- Umbrella insurance
- Disability insurance
- Life insurance
- Permanent life insurance
Disclaimer:
- The information provided is for educational purposes only and does not constitute personal financial, tax or investment advice and should not be relied on as such. It does not take into consideration any investor’s particular investment objectives, strategies, time horizon, and tax or legal status. Abacus Wealth International (AWI) does not provide tax or legal advice. Please consult a tax or legal professional for corresponding tax and legal advice.
- All material and content have been obtained from sources believed to be reliable. AWI does not guarantee the accuracy of the information provided and shall not be held liable for decisions based on the foregoing information.
- All examples of graphs, financial products and historical returns contained in the foregoing material are for illustration and educational purposes only and shall not be deemed as financial advice or recommendation. Past performance is not indicative of any future investment returns.