When you put together your goals and create a strategy to achieve them, then you have a financial plan in place.
There are many tools available online that help you to calculate how to achieve certain goals. The mistake many investors make is in not leaving a margin for error. Many calculators assume a perfect or near perfect return every year which helps in compounding your money over time. But markets behave in an altogether different manner – giving well below average or even negative returns in some years and average or above average returns in other years.
Even when you put all your goals together, financial plans are not set it and forget it kind of strategies.
There could be a change in your financial circumstance – you may need to take care of a parent or start a family.
There could be big moves in the financial market – which could cause your asset allocation to go out of your target.
Your financial products or schemes might need to be reviewed.
For these and many more reasons it’s very important to regularly revisit and review your financial goals, your asset allocation and even your investments – at least once or twice a year.
Why make a perfect financial plan when so many things can change? We have talked about having financial goals in the past and how goals can help give direction to your money.
The real value of a financial plan is not in the asset allocation or in it being perfect on paper, we are all human beings and so there will always be something that life throws at us that can throw our plans out of place.
But the simple act of creating and sticking to a plan helps you avoid making bigger and more expensive mistakes with your money. It might require regular review and updating – but the perfect should not be the enemy of the good. That’s where the real value of the financial plan lies.