So, you took control of your financial life a year (or more!) ago and sat down with a professional to create your ‘roadmap’ — a financial plan. Odds are, you’re making great strides thanks to this move — the Financial Planning Standards Council notes that more than 80 per cent of Canadians with comprehensive financial plans “feel on track” with their financial affairs.
But hold on a second! Your life has taken a few twists and turns since your original plan was drafted. So, is it still working for you?
Financial plans are time-sensitive, says Monique Madan a certified financial planner with ETF Capital Management in Toronto, so it isn’t realistic to expect them to be accurate months or years after they’re prepared. But don’t worry – for those with a solid foundation, the ‘refresh’ can be quick and painless.
“If the client has followed up with you periodically, the update could be really efficient and not very costly, because the plan is so front-loaded in effort,” she explains.
How do you know if it’s time to revisit your financial plan, and how do you go about updating it? Here are a few general guidelines:
What’s New, Pussycat?
Ideally, says Madan, clients and their financial planners should connect annually to see what, if anything, has changed.
“‘Is your health ok? Are you still working at the same job? Do you have any unusual expenses you’re managing or expecting?’ It can be as simple as that.”
Otherwise, a change in personal circumstances or major life event – whether related to career, finances, marital status or goals – should always prompt a review or an update to their plan.
In terms of a comprehensive financial plan which also includes areas such as retirement, debt repayment, insurance and estate planning, Shay Steacy, a certified financial planner with Kind Wealth in Burlington, Ont., recommends an update every three years or so.
Back to the Future
During a review, planners will start by looking at the recommendations in the existing plan, to see what’s been working and what hasn’t, and how the client feels about the way things are progressing in terms of goals.
The process, says Steacy, is not unlike a traffic app or GPS.
“We’ll say, ‘are there any better routes that you could take to get you where you wanted to go?’ ‘have you had any traffic along the way that has now put you back from your plan?’”
“Starting from the previous plan’s recommendations, I’ll ask, ‘has there been any change to your income, anticipated expenses, assets, liabilities, and priorities?’” says Madan. “Has this been an unusual tax year? Any real increase in compensation? What, if any, major changes to the portfolio have happened?”
Financial planners will also use the opportunity to review any recent federal budget changes that might impact the client and ensure that any tax recommendations that were made in the original plan are still current.
Subject to the outcome of the review and depending on the circumstance, planners may recommend changes around things like investment philosophy, cash flow or simply provide reassurance.
If you’ve postponed updating your financial plan, it’s possible that a previous expense has decreased, and you have surplus cash. Without a new goal to redirect it to, you may simply spend it. One example, says Steacy, is decreased or eliminated daycare costs since the date of the original financial plan.
“So if the plan is regularly updated and we’re reviewing cash flow, we’ll know ‘hey, you now have $1,000 a month that you aren’t paying in daycare anymore. What can we do with that money now?” Staying engaged with and excited about your financial well-being “is something that reviewing a plan on a regular basis will achieve.”