With summer just around the corner, financial planning is likely the last thing on your mind. After all, summer is a time to disconnect, unwind, and recharge for the inevitable craziness of fall. Still, I find mid-year–just before the lull of summer takes hold–is a great time to take stock of your financial situation, your goals, and the progress you’ve made since the start of the year.
In my experience, the simple habit of reviewing and recommitting to your financial plan each year helps ensure that your money is continually aligned with the life you want. As a living document, your financial plan changes as you do. Certain events in your life–and in some cases, economic and policy changes–will impact your goals and the strategies you have in place to achieve them.
When your financial plan accurately reflects the life you’re living–and the life you want–you’ll feel more confident about recommitting to it year after year. For your mid-year check-in, I recommend asking yourself three questions to determine if your financial plan is still aligned with your life.
Three Questions to Ask Yourself Before Recommitting to Your Financial Plan:
#1: Have My Personal Circumstances Changed?
As air-tight as your financial plan may seem, life is full of surprises. When your personal circumstances and family dynamics change, you’ll likely need to update your financial plan accordingly.
If you get married or divorced, for example, your near- and long-term financial goals will inevitably be affected. Maybe you decide to add to your family, so you now need to save for a larger house or pay for college. These changes can also impact your day-to-day expenses, which means you may have to adjust how much you’re paying towards debt or saving for retirement.
A job change can also trigger revisions to your financial plan, especially if your income changes dramatically. And differences in your retirement and healthcare benefits may require you to alter your current savings target or review your insurance policies.
Alternatively, you may receive a large inheritance, divorce settlement, or financial bonus that dramatically increases your net worth. Sudden wealth often requires a variety of changes to the way you currently manage your finances.
The point is, life can change in a multitude of ways. Your financial plan often needs to be updated when this happens. In addition, the longer-term goals you have for your money and the legacy you wish to leave behind are often driven by your personal circumstances and family dynamics. Don’t forget to review your estate plan when these life changes occur.
#2: Have My Goals Changed?
While life has its surprises, we’re in control of the goals we set for ourselves and the path we take to achieve them. Sometimes our circumstances may change our goals. In other cases, we may simply develop a new dream for the future. Regardless, when your financial goals change, your financial plan will, too.
In my practice, I try to help my clients identify goals that are aligned with their core values. Since values guide our decisions and behaviors, I believe recommitting to your financial plan is far easier when it’s aligned with what’s truly important to you. This is especially true during hard times, such as a financial setback or market downturn.
As you review your financial plan, it’s helpful to make sure your goals are not only reflective of your personal circumstances, but authentic to you, as well. In other words, make sure the “why” behind your goals is still meaningful to you and isn’t simply what you think you should be doing with your money.
If you need help figuring out what your core values are, here’s a helpful exercise. In addition, here’s my three-step process for setting financial goals.
#3: Have External Circumstances Changed?
Sometimes major policy changes can be a valid reason to update your financial plan. For example, the Tax Cut and Jobs Act of 2017 made several meaningful changes to the way individuals pay their income taxes. For some people, these changes resulted in significant tax savings compared to previous years and in turn, extra cash to allocate towards their financial goals.
A more recent example is the SECURE Act of 2019, which included new rules for individual retirement accounts (IRAs). The SECURE Act pushed back the age at which IRA owners need to take required minimum distributions (RMDs) and allows traditional IRA owners to keep making contributions indefinitely. In addition, it created new rules for most non-spouse beneficiaries of IRAs. Both of these changes could result in significant changes to your financial and estate plans.
It’s important to note that the external circumstances I’m referring to do not include day-to-day market activity. The reason you have a financial plan is to keep you centered and focused when markets are behaving erratically. Unless your personal circumstances or financial goals have changed, your financial plan should never change due to market action.
A Trusted Advisor Can Help
Our financial and estate plans are designed for life’s many transitions–marriage, children, retirement, and ultimately, the legacies we leave behind. But as time goes on, our circumstances and goals can change dramatically and sometimes, unexpectedly. It’s important to revisit your financial plan regularly to make sure it’s still in alignment with the life you have, as well as the life you want.
We believe this is where the value of working with a fiduciary financial advisor like Align Financial comes into play. We’ll help you put your life changes into context, set financial goals, and develop strategies that are aligned with your ideal future.
In addition, we take a proactive approach when policy changes and other external factors have the potential to impact your financial plan. Our goal is to help you feel good about recommitting to your financial plan year after year. If Align Financial can help you develop a financial plan that aligns your money with your life, we hope you won’t hesitate to .
