7 Simple Steps to Evolve Your Financial Plan
Evolving your financial plan and adapting it to changing circumstances is a critical aspect of achieving long-term financial success. Here’s a step-by-step guide on how to do it:
1. Regularly Review Your Financial Plan:
Schedule periodic reviews of your financial plan, such as annually or semi-annually. These reviews are essential for tracking your progress and identifying areas that need adjustment. Use the free budget template to keep track of your financial transactions and check progress on your dashboard. The dashboard calculates your progress for you, painting a picture of how you’re progressing toward your milestones.
I use this spreadsheet as I find it easier than financial apps and well, I just LOVE spreadsheets and use them for just about everything. You can check out and adapt this free sheet to meet your needs. For those that don’t feel the same nerdy passion I feel for spreadsheet find financial apps can be helpful.
- During the review, assess the following:
- Income: Have your income sources changed, such as a raise or a job change? If so, be sure to increase your automatic savings rate in line with your increase in salary. If you don’t, you’ll find your new found income will simply disappear!
- Expenses: How are you tracking on minimizing your expenses in your target areas? How easy or hard was it to reduce them? If you’re finding it really hard, ask yourself if you’re cutting expenses in the right area, and reconsider areas that are less important to you. Managing expenses is important, but so is happiness, so cut expenses in the area that are not directly correlated to your fulfillment.
- Debt: Review your outstanding debts and progress in paying them down. Is your pay down method working for you or do you need to switch it up? Calculate how much you’ve saved in interest to motivate you on your journey.
- Savings: Are you meeting your savings goals? If not, what roadblocks are you experiencing? Are they physical or psychological? And how can you get around them?
- Investments: Check the performance of your investments -but remember you’re investing for the long term so don’t interrupt your compound growth!
- Financial goals: Assess whether your financial goals have changed or evolved over time. Have you achieved some goals and are you ready to create new one? Have any major life events like marriage, children, or a move impacted your financial plan? Do you need to adjust your goals to align with your current situation and future plans?
2. Track Your Overall Net Worth Over Time:
Calculate your net worth regularly by subtracting your total debts from your total assets. Tracking this figure over time can help you gauge your financial progress. For the spreadsheet inclined, a tool I personally find useful to track Net Worth is Tiller Finance. It provides a spreadsheet that automatically imports your account balances to allow you to see your complete financial picture.
3. Adjust Your Financial Goals:
- Life circumstances change, and so should your financial goals if necessary. Your goals should align with your current priorities and values and your future aspirations.
- Reevaluate both short-term and long-term goals, considering factors like retirement, education funding, homeownership, and travel.
4. Adapt Your Budget: Save Money Dynamically
- Modify your budget to reflect any changes in income, expenses, or financial goals. If you have new expenses (e.g., childcare) or increased income, adjust your budget accordingly.
- Aim to achieve a 50/30/20 split. Use percentages so savings increase as income increases.
- 50% on essential expenses (needs),
- 30% on non essential (wants)
- 20% on savings
- 15% retirement
- 5% short term
- For your short term savings, you’ll want to start building 6 months of expenses and put it into an emergency savings fund. After you’ve achieved that, you can save for other things like holidays, wedding, car or a house.
- Save Money Dynamically – Increase your savings and investments rates as your income increases. DON’T be a victim of “lifestyle creep”, when making more money leads to spending more money! This is easily achieved through increasing your automatic savings from your paycheck.
5. Address Debt Management:
If you’ve made significant progress in paying down high-interest debt, consider redirecting those funds towards other financial goals or investments. How much was your monthly debt payment? Move that same amount into savings once you’re paid off. You built a great habit, why not keep it going?
6. Revisit Your Investment Portfolio:
- Regularly review your investment portfolio’s performance and risk level. Ensure it aligns with your risk tolerance and long-term goals. Practice patience and have a long-term view!
- Consider rebalancing your portfolio to maintain your desired asset allocation. If you’re invested in a target date index fund, this step is automatically done for you as your retirement date nears.
7. Emergency Fund and Insurance:
- Ensure your emergency fund is adequately funded to cover unexpected expenses.
- Review your insurance coverage to ensure it meets your current needs, especially if you’ve experienced life changes like marriage, children, or purchasing a home. Insurance companies almost always raise your rates every year, many times without you knowing. Call them annually on renewal to walk through your coverage and rates and ensure you’re not over or under insured.
Keep These Things in Mind:
Remember that a financial plan is not static; it should evolve with your life circumstances and financial goals. By regularly monitoring your progress and making adjustments, you can ensure that your financial plan remains relevant and effective in helping you achieve your objectives and financial security.
LIVE RICHLY. FIND HAPPY.
I know How I am Progressing and How to Adapt My Plan when I need to – now what?
Congrats on achieving Milestone 5 – You know how to monitor and evolve your financial plan!
Now, learn more about the other 5 milestones on your journey to living richly!
Milestone 1 – Envision the life you want to live. Define what living richly means to you.
Milestone 5: Evolve. Monitor your progress and learn from your experiences. Adjust and adapt your financial plan to accommodate learnings and changing life stages.
Learn more about building wealth and your rich life at liverichly.blog
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