In the last few posts, we’ve looked at setting goals and building plans to achieve those goals. But working towards financial independence can take a while, and you need to know whether or not you’re on track as you go along. And you do that by having a robust review process in place.
The last thing you would want to happen is to be merrily working away towards your goals and then get to near the time when you hoped to reach them, only to find out you were nowhere near.
And yet, this is the approach that so many people take with their wealth-building – they set things up once with what they hope will be the right strategy and then maybe look at their pension statement once a year.
Everything You Need to KNOW
1. Remember What You’re Trying to Achieve
We’re reviewing progress, but progress towards what? Towards your goals, that’s what. We’re head down, grafting towards building up a sum of money and/or secured income sources so we can achieve FI one day.
The review is our chance to lift up our heads and see the target in the distance. It’s a valuable exercise in staying focused simply because it reminds us of the reasons we’re working so hard. You’ve already created a one-page financial plan with your key goals on it and the action steps you’re taking to get there.
This will be your starting point for your review. It’s really important to realise that this isn’t primarily an investment review, though that may be a small part of the process. Rather, it’s your plan that is being reviewed and your progress towards your goals.
2. Three Reasons for Reviewing a Plan
As an adviser I’m responsible for ensuring the advice I have given in the past continues to be suitable for my clients as time goes on and I’ve identified three reasons why something which is set up well in the first place may need to be addressed. These three are in reverse order of likelihood:
a). The economy and markets. It’s very rare that you should change your portfolio as a result of markets, but you may need to address some other aspects of your plan and actions due to really adverse market movements.
b). Changes in legislation. Occasionally something changes in the personal finance arena that might make you reassess things. The Pensions Freedoms that came into force in April 2015 are a case in point. I spent a whole year at every client review going over the changes and seeing what needs to be done for each client in light of them. Changes like this don’t happen often, but when they do come along, you may need to see how they impact your plans.
c). Changes in circumstances. The number one reason your plans and actions might need to change is because life happens. You lose your job or get a promotion, you lose a partner or find one, you have health scare. Each of these and plenty more besides might mean that a review is required.
3. There is Such a Thing as Reviewing too Often
One bad habit that is easy to get into is looking at things too often. I’m an inherently lazy person when it comes to stuff that I just don’t want to do, and when it comes to financial planning reviews, this is a good thing.
It’s especially easy to obsess about things when you’re starting out. You’re excited about the progress you’re making, and if you’re new to investing and wealth-building, then it can be really tempting to keep checking in on your portfolio every day. But the problem with that is that it can lead to second-guessing your approach, which can in turn lead to unhelpful behaviour.
I don’t think it is necessary to formally review your plans more than once a year. The exception to this is if one of the big life-events takes place. Then it makes sense to conduct an interim review. If you think it will have a bearing on your financial plans, it’s worth putting one in.
4. There is no Sense in Reviewing the Things you Can’t Control
It’s as important to understand what you are NOT reviewing as much as what you are. It makes no sense at all to waste time and energy looking too deeply into things that you can’t control.
The first of these has to be the markets. Depending on your level of interest, you may keep a passing eye on what’s going on in the markets and why, but remember that you’re not going to react to those things anyway, so your review doesn’t need to spend time on them.
You also don’t need to spend any time thinking about what other people are doing. Even your FI buddies, if you have them, have their own life circumstances and timescales, and approaches to investing. Don’t obsess about what they’re doing but stick to your path. Stick to the things you can control – that’s what you need to review.