by MATT BADER, FINANCIAL PLANNER, PARTNER
Basing your financial plan on your long-term goals is not the same as following a set-it-and-forget-it strategy. This is important to understand!
While looking long-term and tuning out the noise is key, so is reviewing your plan on a regular basis, at least once a year, to make sure your long-term goals, and what you’re essentially working toward, are the same.
Life is full of changes, and you want your financial plan to reflect those changes to stay relevant.
Think about it: Why would you continue to save for your children’s college education if they received a full-ride scholarship? Why would you continue to save for a down-payment on a house if you inherited property? Why would your retirement plan require you to save enough for traveling expenses if you no longer plan to travel in retirement?
As a financial advisor in Brentwood, TN, there are many reasons why your long-term goals would change, and therefore, your financial plan should too.
1. Your Life Changes
Has anything in your personal life changed?
If you’re single, for example, your financial needs may change when you’re married to include a spouse, a larger home or planning for children. If you’re married, they may change when kids leave the home, or if you become divorced or widowed. You may need to change your assets or the components of your estate plan, like wills, trusts or powers of attorney.
Another life change is retirement. You may decide to retire earlier or differently than you had previously anticipated, due to changes in your health, your employment or your overall outlook. If this is the case, make sure to review your plans with a financial advisor to account for a new date.
2. Your Goals Change
Your goals are the foundation to a financial plan, and your financial plan is set up to help you realize those goals.
What if you initially planned to spend retirement traveling, and now you realize you’d rather spend time close to home with your grandchildren? What if you originally planned to relocate, but now family moved closer to you? Each can have major changes in your plan for your assets, your estate and your budget.
Again, make sure to review your goals with a financial advisor at least once a year – or whenever your goals change in significant ways.
3. The Stock Market Changes
Most portfolios blend asset classes to maximize their return and suitability. The standard asset classes are stocks, to help realize maximum returns; bonds, to obtain some yield and possible price appreciation while counterbalancing the volatility in stocks; and cash, for stability and yield.
While the stock market may be steady now, that, of course, can change. Bear markets occur periodically, and should be expected as a normal part of stock market volatility. Does your plan need rebalancing?
Your asset allocations should be reviewed periodically based on performance, your goals and your age to make sure they still make sense for you.
4. Your Risk Tolerance Changes
Risk tolerance refers to one’s comfort with risk, often defined as fluctuations in your assets. Stock market declines are one example, but other types of investments, such as options and commodities, can be very volatile. Simply put, if the fluctuating prices of your investments or retirement portfolio worry you and they didn’t used to, your risk tolerance may have changed!
Discuss any changes in your risk tolerance, or any questions about risk tolerance, with a financial advisor.
5. Your Income May Change
Many people experienced an income change in 2020, due to COVID-19, be it due to job loss, position change or early retirement.
If your income changes significantly, up or down, it’s prudent to discuss these changes with a financial advisor. If your salary increased, it may be time to recalibrate investments and retirement plan contributions, as well as other parts of your financial plan. If you’re making less, you may need to revisit your fixed expenses, draw on your assets or adjust your goals.
6. Tax Laws Change
Tax law changes can exert major changes on your financial life, from what to invest in (and when to invest it) to what is deductible based on where you live. The caps on property and local tax deductions and mortgage interest deductions in the Tax Cuts and Jobs Act, which became effective in 2018, for example, may have changed your tax picture.
If you don’t have the time or interest to stay up-to-date on the ever-changing state and federal tax laws, work with someone who does! No one likes expensive financial surprises, especially when you’re on a fixed income.
7. Your Needs Change
Just as life changes constantly, your needs will change as well.
When you’re young, for example, you may be juggling the repayment of your student loans along with saving for a down payment on a home. As you achieve one of those goals, make sure your financial plan accounts for the accomplishment. Can you put more money toward other priorities?
Similarly, when you reach middle-age, your kids may leave home, and the large, multi-bedroom house you once needed may now be too large, or may not fit your needs in other ways. Changes in your health as you age can also change your living situation.
If your needs have changed, it’s important to review your financial plan with a financial advisor to make sure that your goals are adjusted as necessary and that your financial plan aligns with any new goals. It’s also crucial to make sure your financial advisor can help you with any new needs you have. For example, does your financial advisor specialize in financial planning for divorcees, widows or early retirements? This is important to know.
How We Can Help
At TrustCore, we strongly believe that money should be used as a tool to create a life that is fulfilling and meaningful. With this in mind, our team of financial advisors in Brentwood, TN are passionate about getting to know our clients and undercovering their goals, both locally and nationwide. If you’re ready to take your financial planning to the next level by creating a customized financial plan that is based on your goals and concerns, let’s talk. Your financial future is too important to put off!
Learn more about how TrustCore can help with investment management.
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