If you’ve gone through the process of building out a financial plan, establishing a budget, and evaluating your investment strategy… It’s important to know your plan is effective, right? Financial plans aren’t meant to be stagnant, “set it and forget it” documents. Rather, their role in your life is to evolve just as you do, changing dynamically to reflect your financial life.
But over time, you may realize that your financial plan just isn’t working. For one reason or another, it may stop serving your needs—may no longer push you closer to your goals. When that happens, it’s time to take a step back, talk with a financial advisor (if you haven’t already), and make changes that can help breathe new life into your financial roadmap.
Let’s take a look at a few telltale signs that your financial plan may no longer be working for you.
You Aren’t Happy (Maybe Even Downright Miserable)
“Budget” isn’t a dirty word, and it’s not meant to make you miserable.
A well-working budget is meant to prioritize both long-term satisfaction and delayed gratification. But consider it like a diet—being ultra-restrictive may work temporarily, but ultimately, you need to strike a healthy balance between feeling satiated today and thinking about your future well-being.
If you’re regularly unhappy with your spending, saving, or investing strategies, either your expectations need to be readjusted or your strategy doesn’t suit your particular needs. In either case, prolonged dissatisfaction deserves a closer look, and you may need to head back to the drawing board (or consult a professional) to make readjustments.
For example, maybe your budget is on a savings schedule that’s simply too aggressive.
If you’re someone who enjoys going to happy hour with friends or taking day trips to new cities on the weekends, think about how you can incorporate the things that bring you joy into your budget. You’ve worked hard to earn an income, and while you need to be cognizant of the future, you still deserve to enjoy some of that hard-earned money today.
In many cases, it’s possible to still do the things that make you happy (just within moderation). To cut them out completely in the name of saving aggressively may make it harder for you to stick to the budget long-term and feel satisfied with your lifestyle.
You Don’t Adhere to It
A financial plan really only works if you stick to it consistently and over an extended period of time. But if you find yourself regularly spending more than the budget permits or tapping into your savings each month to cover expenses, there’s an issue. Either your financial plan or your spending habits need to be adjusted.
You may find that you’re consistently overspending in certain categories, like dining out. Or, perhaps your budget doesn’t account for the impact of high inflation on utilities, groceries, gas, etc.
Again, you’ll need to pause, take a step back, and figure out where the discrepancy lies between your financial plan and actual money habits.
Debt Grows Unchecked
Debt comes in a few forms and plays different roles in your financial life.
Consumer debt includes high interest rates and unsecured lines of credit (think credit cards and personal loans). Consumer debt generally causes strain on your financial plan, and it should be avoided as much as possible.
On the other hand, secured lines of credit or loans like a mortgage or business loan can be used to help someone preserve more of their own capital while purchasing assets that may grow in value over time.
While there’s a general distinction between “good” and “bad” debt, any debt should be considered carefully. If too much monthly income is directed toward debt repayment, you could struggle to meet your other financial obligations (growing your savings, adding to retirement, funding your brokerage account, etc.). Not to mention, high-interest debt can continue growing over time as interest accrues, and it may affect your credit score.
You Aren’t Meeting the Milestone Markers as You Should
There is a quantifiable way to determine if your financial plan isn’t working—you simply aren’t progressing towards your long-term goals.
If you have a long-term goal, like buying a home, you’ve likely attached a dollar amount to that goal.
Say you want to save $50,000 for a down payment. As you incorporate that savings goal into your budget, you should consider your timeline and expected savings rate. Perhaps you’d like to set aside $10,000 each year (around $833 a month), which would enable you to hit your goal in five years.
Now, if you check in on your goal each year, you should see exactly how much you’ve saved and if you’re meeting each annual mile marker. If your savings aren’t progressing as they should be, you may not be contributing enough each month. This could also mean you’re pulling from your savings to meet your other, more immediate financial obligations.
In either case, the discrepancies between your anticipated savings rate and actual savings need to be addressed.
You Feel Financially Vulnerable
A well-built financial plan should offer some reassurance that you’re on the right track and prepared for the unexpected. If you still feel like your vision of the future is unclear or you’re worried about the “what ifs,” then your financial plan may not quite be doing its job.
If you have a financial plan that aligns with your long-term goals and addresses your needs today, you should feel confident to handle unexpected events like:
- Job layoffs
- Home or car repairs
- Market downturns
- Large medical bills
- Death in the family
Your financial plan can proactively address these concerns by incorporating guardrails like:
- Emergency savings for up to six months’ worth of expenses
- Up-to-date estate planning documents
- Insurance (life, disability, health, liability, etc.)
- Diverse investment assets
All investing involves risk and may lose money (including principal). But if you feel like your financial plan is leaving any piece of your financial life exposed to too much risk, consider how you can address those concerns promptly. Perhaps you’ll need to reassess your insurance coverage, adjust your portfolio’s asset allocation, build more savings, or speak with a financial advisor for more tailored guidance.
It No Longer Reflects Your Financial Situation
Your financial life may change drastically enough that the plan you’ve been following no longer applies. For most people, their financial circumstances evolve gradually over time—pay increases are gradual with each promotion, expenses grow with inflation, etc.
But if you experience a sudden or sizable change, your financial plan may need to be revamped to better reflect your new circumstances. Most commonly, you might inherit a large estate from your parents or grandparents, though this could also apply if you win the lottery, your business takes off, or you exercise company stock options.
You may also need to rework your financial plan if your family circumstances change—you have a child or adopt one, lose a spouse, divorce, remarry, etc.
If you do experience a change in your financial situation, consider how it impacts your long-term goals. Does it change how soon you’ll be able to achieve them? Or maybe a sudden windfall has you reconsidering your future goals altogether.
Make Your Financial Plan the Foundation of Your Financial Life
The whole purpose of following a financial plan is to make smart, forward-focused decisions today that support your goals for the future.
If, over time, you find that your plan (or the decisions you’re making regularly) aren’t in line with your long-term goals, then something needs to change. From your spending habits to the asset allocation of your portfolio, every decision should reflect you and your unique financial circumstances.
You may find it helpful to speak with a financial advisor if you feel like you’re losing sight of your long-term goals. They can help you build a tailored financial plan that balances your desire to enjoy your wealth today while supporting your future financial needs.
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