Planning your finances is important, but reviewing that plan regularly is just as crucial. As your income, responsibilities, and market conditions change over time, periodic financial reviews act as warning signals that help protect your long-term financial stability. Experts say an annual financial health check can make the difference between merely saving money and actually achieving your life goals.
Think of your financial life as a long journey. Before starting, you decide your destination and choose the best route based on time, resources, and comfort. Along the way, you keep checking milestones to know how far you have come and how much distance remains. If needed, you adjust your speed or even change routes to reach the destination on time.
Your financial journey works in a very similar way. For most people, the earning phase of life is limited. Retirement eventually arrives, and earning capacity also reduces with age. During this limited period, you must plan carefully to achieve multiple goals—children’s education and marriage, buying a home, wealth creation, and most importantly, a financially secure retirement.
Without regular reviews, even a well-designed financial plan can drift off track.
Almost all financial advisors recommend reviewing your financial plan at least once a year. This review involves checking both your goals and the performance of investments linked to those goals.
Major life events such as marriage, the birth of a child, or caring for aging parents often change financial priorities. Similarly, a job change, salary hike, or income reduction directly affects your disposable income and savings capacity. When income rises, it becomes important to allocate more funds toward long-term goals to stay ahead of inflation.
Investment planning is usually done by assuming a certain rate of return based on market conditions and past performance of an asset class. Risk tolerance also plays a key role in choosing investments. However, over time, some goals may increase in cost, get postponed, or even become irrelevant. In such cases, you may need to revise ongoing SIP amounts in mutual funds or redirect investments toward more urgent goals.
An annual review also helps identify underperforming mutual fund schemes. If a fund consistently fails to meet expectations, it may be wise to stop SIPs in that scheme and shift investments to better-performing alternatives instead of staying invested out of inertia.
Reviewing individual investments alone is not enough. Experts emphasize the importance of reviewing overall asset allocation as well. If one asset class performs exceptionally well in a particular year, it can disturb the balance of your portfolio and increase risk.
For example, during a strong equity market rally, the equity portion of your portfolio may grow disproportionately. In such cases, partial profit booking and shifting funds to debt instruments can help restore balance and reduce risk. On the other hand, during market downturns, gradually moving funds from debt to equity can improve long-term returns.
Regular portfolio rebalancing ensures that your investments remain aligned with your risk profile and financial goals, making it easier to accumulate the required corpus within a defined timeframe.
Just like investments, insurance needs also change with life circumstances. Marriage, the birth of children, and rising income increase financial responsibilities, making higher insurance coverage necessary.
As a general rule, life insurance coverage should be at least 12 times your annual income. Since income usually increases over time due to inflation and career growth, it is important to periodically review and enhance your life insurance cover to match your current situation and lifestyle.
Health insurance requires even closer attention. In India, education and healthcare costs are rising faster than general inflation. Even if you already have health insurance, it is essential to review whether the sum insured is sufficient to handle today’s medical expenses.
Lifestyle-related conditions such as high blood pressure or diabetes may not require immediate hospitalization, but they can lead to costly treatments in the future. Since pre-existing conditions often come with waiting periods, increasing coverage early can be highly beneficial.
Even if you are covered under your employer’s group health insurance policy, experts strongly recommend having a separate personal health insurance plan. Job changes, layoffs, or retirement can leave you without coverage, and buying insurance later may become expensive or difficult.
An annual financial health check is not about fixing mistakes—it is about staying prepared. Regular reviews help you adjust to life changes, manage risks, and stay on track to meet your goals without unnecessary stress.
Just as you would not plan a long journey without checking directions along the way, you should not leave your financial future to chance. A timely review today can ensure financial confidence and stability tomorrow.
