Monitoring a Financial Plan

The last step of the financial planning process involves monitoring the financial plan’s implementation and progress towards meeting goals and objectives. It should be no surprise that the world that we live in constantly changes. Due to these changes, its important to ensure that our financial plans are up to date.

Financial planning is an ongoing process that entails defining goals, gathering data, measuring progress and changing course when necessary. Financial plans should be considered a “living document”, which means that it is continually edited and updated. This ensures that the recommendations that you have implemented are still relevant and needed to help you reach your goals.

Financial Planning is a Ongoing Process

The elements of personal finance have the tendency to change, some more than others. A minor change in one of these elements (budgets, investments, financial risks, estate plan, etc.) can severely impact your ability to meet your financial planning and life goals.

To ensure that minor changes in your life are incorporated into your financial plan, its recommended to review and revise your plan at least annually. In the best case scenario a financial plan would be revised upon realizing that some facts or assumptions in your financial plan have changed.

Monitor These Financial Planning Elements

Implementation of Recommendations - A financial plan only works if its implemented correctly. When reviewing your financial plan, ensure that all feasible recommendations have been executed on time. This includes changes to your budget, risk management, savings, investments and estate plan.

Cash Flow and Budget - Our budgets have the tendency to change from month to month. Monitor your financial plan to ensure that income and expenses haven’t changed enough to jeopardize your success. This also includes reviewing debt levels and the trends of other liabilities. Its a good idea to consistently monitor the use of credit cards and other lines of consumer credit.

Risk Management and Insurance - Reviewing our risk management strategy ensures that our current insurance coverage is adequate. Changes in lifestyle, home value and other financial planning elements can effect whether you have the right coverage. Its also a good idea to shop around for new insurance deals once in a while. This can help lower your expenses.

Savings and Investments - Financial markets are in a constant state of flux. Assumptions, such as expected investment returns, have a huge impact on retirement planning and the accomplishment of our other goals. Ensure that your savings and investments are performing well (relative to the broad market). You many need to change your asset allocation, increase liquidity through asset sales or increase your savings rate.

Monitoring a financial plan will help ensure that changes in personal circumstances, financial markets and our lives in general will not impact our ability to reach our financial goals. Financial plans are “living documents” that should be revised as often as necessary in order to remain relevant.