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Monitoring the Plan

Nothing lasts forever; certainly not a personal financial plan. If you have invested the time, effort, and money needed to implement your financial plan, you definitely don't want changed circumstances to make your plan obsolete.

Many changes can happen in life that may make it advisable for you to change one or more parts of your personal financial plan. When you are confronted with such a change in circumstances, the first rule is: Don't panic! It's quite likely that some, if not most, of your plan will still be O.K. We don't say this to lull you into a false sense of security, but only so you're not so discouraged that you ignore the change and hope that it doesn't have an adverse effect on your plan.

One fact is certain: change is inevitable. When change occurs, you need to review carefully all portions of the plan and make sure that they still represent what you want, what you need, and how to get there. (Of course, it's an excellent idea to review your plan on a regular basis--for example, during your birthday month.)

Remember, as bad as living with an outdated plan is, dying with an outdated plan may be worse, since your family may no longer be able to correct the problem.

In deciding whether your personal financial plan needs to be updated to reflect changed circumstances, you'll have to consider two categories of changes: those that have a direct monetary impact and those that do not. We'll discuss each.

Changes having a direct monetary effect. Some changes have a direct and immediate monetary effect on your financial plan. These include:

  • The cost of your goal increases or decreases.
  • Your ability to make the required savings to reach your goal increases or decreases.
  • The yield (interest, dividends, and capital gains) on your savings or investment increases or decreases.
  • The timeline for attaining the goal increases or decreases.

You have to expect that any of the first three items will change somewhat over time. When we talk about changed circumstances within the context of amending your financial plan, we mean changes that are large enough to potentially affect whether you reach your goal. To determine if the changes are this large, we suggest that you take a look at our discussion of planning to reach your goals.

Changes having an indirect monetary effect. In addition to those changes that have a direct monetary affect on your financial plan, there are changes which affect your financial plan less directly.

These indirect changes may be just as important as the direct changes, but with the added complication that you may be less likely to think about their connection to the financial planning that you have done. After all, if the cost of your goal itself goes up, once you discover this you'll know that your plan should be checked to see if you need to modify the plan in some way. However, more indirect changes, like the following, may escape your attention:

  • Tax law changes: changes to the federal income tax, in particular, can have a major impact on your financial plan. If, for example, the tax rates go up, you may well have to count on increased savings or increased yields to make up for the additional money lost to the tax collector.
  • Business climate changes: significant changes to how the U.S. economy is functioning quite likely will affect your plan. A general rise in interest rates, for instance, can be expected to drive down the value of your fixed interest rate investments, making it necessary for you to increase your savings or increase your investment yield (something that should be less difficult because of the climbing interest rates). A general decrease in the interest rates will likely increase the value of your fixed interest investments, but will make it more difficult to maintain your current yield on future investments.
  • Personal family changes: this category is probably hardest to get a handle on because any number of changes to your family situation can impact your financial plan greatly. No list can contain all of the things you should watch for, but the following list includes some of the most common factors:
    • new children (by birth, adoption, or by marriage), new grandchildren, nieces or nephews
    • changes to marital status: marriage, divorce, separation, remarriage
    • health problems suffered by you or your family members
    • job or business changes that significantly change your current income
    • sudden wealth (such as by inheritance), and sudden financial reverses (such as from a legal judgment)
    • your disability or death (or the disability or death of family members or business partners or associates)
    • changed educational plans for your children or grandchildren