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Part 4: When to Update Your Financial Plan

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Your Financial Plan

Certain life events can make significant changes to your overall finances and  can necessitate updating your financial plan. This list of life events is provided to alert you to circumstances that may affect your overall plan.

  1. Receiving a large amount of money. “Money is the world’s curse. May the Lord smite me with it! And may I never recover!” This sentiment was spoken by the Tevye character in Fiddler on the Roof. Most of us would like to receive a large sum of money whether through prize winnings, inheritance, or a nice bonus. If you do receive a large amount, we hope you will avoid the most common mistake of immediately buying something. Before you do anything else, consult your financial plan. Windfalls, when not handled correctly, can sometimes cause more problems than they solve. For instance, before spending any of it, consult your tax adviser regarding taxes that may be due.  Another common mistake is buying something that will require more money over time than the actual windfall. For instance, vacation property, boats, expensive cars, or other large expenses may have hidden expenses over time, such as maintenance, taxes, higher fuel costs, etc. A thorough review of your financial plan will help you determine the best use for your windfall whether you decide to reduce debt, increase your emergency savings retirement fund or college fund, or use it toward a well-thought-out large purchase. If you don’t have a financial plan, start an eFinPLAN financial plan today. Your eFinPLAN financial plan provides “what-if” scenarios so that you may see how your entire financial plan may change depending on how you use your windfall. We also highly recommend discussing your dreams and plans with your family. Don’t let this blessing create a division in your relationships.
  2. Incurring Large Expenses.  If you incur a large expense, don’t panic—plan instead. If this expense was planned, then update your financial plan accordingly. If the expense was unplanned, review and update your financial plan to see how this expense affects your overall plan.
  3. Buying or Selling Property or a Business. If you buy or sell any type of real estate, a business, or a valuable possession, be sure to consult your financial plan, as well as your legal and tax advisers. There may be a whole host of issues that your trusted advisers can help with not only to make the transaction more profitable but also to prevent financial, legal or tax problems.
  4. Acquiring or Paying Off Debt.  If you recently have assumed more debt, it is important that you adjust your financial plan so that you know how it may affect the other areas of your finances. If you have paid off debt and have extra money freed up, now is an excellent time to look at your financial plan’s implementation checklist to determine if there are items that you have not yet done, such as saving additional funds for your financial goals. If you do not have a financial plan, now is an excellent time to start one, so that you can adjust your finances for this new obligation or increased cash flow.
  5. Having a Child. If you are preparing for an upcoming baby or adopting a child, you also need to prepare for the adjustments this dramatic change brings to your finances. This is an excellent time to look at (or start) your financial plan.
  6. Changing your Marital Status.  Whether you are getting married or divorced, or you have become widowed, your financial plan will be greatly affected.
  7. Changing your Employment or Income.  If you have a change in employment, your income and benefits may change. You may also have money from retirement plans that you may want to roll over into an IRA. How will the changes affect your financial plan? The only way to know is to have one. If you already have a plan, update your plan with the new information. Your overall plan may only change slightly or it may change significantly, but by updating your plan, you will have the information you need in order to stay on track for your future goals.
  8. Changing Employee Benefits.  Whether you change employment or not, your employer-provided pension, retirement, life insurance, disability and health insurance may occasionally change. When these changes happen, input this new data into your financial plan.
  9. Receiving Updated Investment Information.  You should be receiving investment statements from all of your accounts each month and quarter. At least once a year, update your financial plan with the new account balance information. The investment results, new deposits, and withdrawals should be reflected in your financial plan.
  10. Buying or increasing your Life, Disability and Long-Term Care Insurance. 
  11. Your financial plan will indicate any gaps in coverage that you may have for your life, disability, and long-term care insurance. If you implement these changes with the help of your trusted insurance adviser, be sure that you update your financial plan to include these new policies.
  12. Drafting New Legacy Planning Documents.  If you have drafted new will, trust, or other legal documents, make sure that you make all the necessary changes to your beneficiary arrangements on all your accounts (life insurance, retirement, annuity, transfer-on-death accounts). If you draft more complex documents, the attorney may advise some of your property to have a change in ownership arrangement or type. Be sure to follow through on all ownership and beneficiary changes.
  13. Making Changes to Your Plan.  If you have a financial plan, you probably will have a checklist of action items. In addition, your plans, goals, objectives, and priorities may change. Make sure to update your plan and don’t forget to notify your trusted professional financial, investment, insurance, tax and legal advisers of the changes that pertain to them.

Summary:  Certain life events can significantly alter your financial plan. Make sure that you update and adjust your financial plan accordingly. If you have an online financial plan, you can easily make the changes anytime online.

This is the 4th article in a 5-part series about financial planning: