‘The only thing that is constant, is the change‘, remarked a famous Greek philosopher and he was not wrong. Everything in the world changes and so does your financial requirements. As you grow older, your financial responsibilities change as per your financial goals. You are, thus, advised to review your financial portfolio at regular intervals and ensure a sound financial plan. Do you do so?
If you don’t, you should start immediately. If you do, well, congratulations to you. While reviewing your financial portfolio is a commendable job, are you careful when you review? Most individuals aren’t but you should be. Here is a checklist of questions that you should ask yourself when you review your financial plan –
What are your present and future financial goals?
When you are young you want to plan for your future. When you start your family your children’s education becomes your primary goal. You might also want to build your dream house or go on a world tour. Whatever your financial goal you need to plan for it. Since your goals are dynamic, you should consider them when reviewing your financial plan. Find out which financial goals require planning for your present and future life.
What is your current disposable income?
Your disposable income determines the quantum of savings and the investment instruments which you can opt for. Since your disposable income might change over time, your financial plan should be reviewed in tandem with the changed income. If your income has increased you should increase your investments. If on the other hand, your income has decreased you might have to reduce your ongoing investments.
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What is the performance of existing investments?
The financial market is also dynamic. It changes continuously and so does the value of your investments. For instance, fixed deposits and other fixed-income investments are now promising a lower rate of returns than they did 5-10 years back. So, you should review the performance of your existing investments. If your investments are doing well you should invest more in the same. If, however, their performance has dwindled it’s time to switch. Redeem the low-performing investments and redirect your money to more lucrative avenues.
How much tax, are your investments helping you to save?
Investments become sweeter when they help in saving taxes. While some investments give you tax exemptions at both the investment and redemption stage, many give tax relief only at the time of investments. Moreover, there are some investments where you do not get any tax relief. Review your investments to understand how much tax you are being able to save. Try and maximize your tax saving potential by choosing investments that are tax-efficient and redeeming those which are not.
Do you have a sufficient contingency fund?
A contingency fund is essential to meet the costs of those rainy days when a financial emergency might strike. You should hold at least 6 months’ worth of your income in a contingency fund. When reviewing your financial plan make sure that you have planned for a contingency fund. If you have, check its sufficiency. If you haven’t, make it a priority in your financial plan.
Is your Insurance cover sufficient?
Insurance is an essential requirement. Both health and life insurance plans provide you financial security and help at the time of a financial crisis. Having sufficient cover is, therefore, necessary for both these plans. You should, thus, check whether the coverage you have already opted for is optimal or not. And for those who have no life or health insurance plan in their financial portfolio, having one of each is recommended.
Reviewing your financial plan is essential and keeping these questions in mind is the smart thing to do when you review. If you plan according to the above-mentioned questions you would be able to create a fool-proof financial portfolio that would not only meet all your financial goals, it would help in wealth maximization too.