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How Do You Measure the Success of a Financial Plan?
Whether it’s been one year, ten years, or twenty-five since you started your relationship with a financial advisor, you’ll want to know if your plan has been, and is well positioned to continue to be, successful. However, with so many different components to your financial plan, not to mention changes in market conditions and your personal circumstances, you may not be sure how to tell if your financial plan is performing well – or how to measure its success.
Keep reading to learn a few key ways you can measure the success of your financial plan.
You’re Reaching Your Goals on the Outlined Time Horizons.
Perhaps the best way to measure the success of your plan is by comparing its performance against the goals you originally set and the timeframe you outlined for each of them.
Have short term goals been achieved in the desired time frame? Are long- and medium-term goals on track to be reached?
If the answer is yes, your financial plan is working exactly how it was designed to. If not, it may be time to reassess your strategies.
Your Results Align with Your Expectations.
When your financial plan was created, you likely had a conversation with your advisor about the results you could reasonably expect. When you look at your finances now, think about how they align with your expectations. Has your wealth grown the way you expected it to by this point in time? Have you been able to comfortably reach your goals? Are there any pain points or areas where you feel your finances are falling short of what you expected?
This is important to consider, not just in the rate and ways your money is growing, but in how the management and allocation of your funds is working during your day-to-day life. Ask yourself if the amount of money allocated for living expenses and spending each month has been realistic and easy to follow through with. If not, you may want to reassess how your income is allocated and adjust accordingly.
You Have Positive Comparisons Against Relevant Benchmarks.
Your investments are only part of your financial plan, but they are an important part! To measure the success of your investment portfolio, compare your returns to relevant benchmarks, such as overall stock market and bond performance, to see if it is tracking in line or (ideally) above market trends.
When comparing, it’s important to keep in mind the risk tolerance you were comfortable taking on. If you targeted low risk investments, high risk investments that had large returns won’t provide a fair comparison. On the other hand, if you took a great deal of risk, your money may not have been as protected as low risk portfolios and shouldn’t be compared to them.
There Aren’t Any Gaps in Your Plan.
Your financial plan should account for every aspect of your financial life, from income allocation to paying debts, planning for the future, and managing your assets. You should have a clear understanding of how to allocate your income each month with every expense and goal accounted for.
Your Plan Adapts to Market Changes.
A good financial plan protects you in both strong and weak economies, to varying degrees per your risk tolerance.
The market can be unpredictable, and long economic downturns can happen – so it’s important that your financial plan considers this and ensures you have resources in the event of unfavorable market conditions.
You’re Able to Make Adjustments.
It’s unrealistic to think that your personal financial situation won’t change several times throughout the course of your life, so it’s important that your plan is flexible enough to account for both positive and negative changes.
Perhaps you received a large raise – are you able to adjust your plan to reach goals faster or set new goals without difficulty?
On the other hand, there may be a new expense or loss of income that needs to be accounted for. Is your financial advisor able to help you adjust your plans while giving you a clear understanding of how it will affect your goals, time horizons, and overall financial picture?
While it’s understandable that changes in finances will impact your overall plan, it should be relatively easy to make adjustments that reflect your lifestyle and protect your goals.
You Feel Confident in Your Plan.
This is one that is hard to quantify with numbers, but the importance of it cannot be stressed enough. If you have a gut feeling – good or bad – about your financial plan, you should trust it.
If your plan is causing you stress for any reason, set up a meeting with your financial advisor to discuss your concerns. The solution may simply be that you need more information on how the plan works and why it’ll allow you to reach your goals most effectively. You may find that a minor shift in the allocation of your money makes you feel more comfortable or account for an expense you forgot about. A financial advisor is there to guide you, but this is ultimately your financial future and well-being. If changes need to be made so that you feel more confident with your risk tolerance or time horizons, you should feel empowered to make them.
Alternatively, if you feel good about your plan, how your money is structured, the way your investments are performing, and are on track to meet your goals, your confidence is a great indicator that your plan is successful.
Because there are so many different components that go into creating an executing a comprehensive financial plan, there is no one right way to measure its performance. What matters most is that you’re meeting your goals, you understand how your plan works, and feel confident about your financial future. However, if you do have any doubts about the success of your financial plan, it may be time to reassess how your money is structured. Reach out to The Tranel Financial Group today to schedule a consultation and learn how to make your money work for you.
All securities through Money Concepts Capital Corp. Member FINRA / SIPC. Investments are not FDIC/NCUA insured. No bank or credit union guarantee. May lose value. Money Concepts Advisory Service is a Registered Investment Advisor with the SEC. The Tranel Financial Group is an independent firm not affiliated with Money Concepts Capital Corp.
Note: This content is for informational purposes only and should not be considered financial or tax advice. Please consult with your financial or tax advisor for guidance tailored to your specific situation.