Why periodic review of financial plans?

Financial planners will recommend periodic review of financial plans. Clients wonder why I need a review. If I have taken actions as per initial plan, why do I need to review the plan progress periodically?

I will attempt to answer these questions using an analogy. Suppose you want to travel from Pune to Mumbai in car and you can spare 3 hours and 20 minutes for travel. Knowing that the distance is about 150 km you will plan to travel at an average speed of 45 km/hr.

Distance to be covered			Available Time	Speed Required
150	km		3 hrs 20 min	45	km/hr

After you travel 50 km you wish to check whether you are on time or not. You find that you have taken 1 hr 20 min. Due to high traffic in the city area you could not travel at 45 km/hr speed. Knowing that you have only 2 hr to cover another 100 km you decide that now you need to travel at speed of 50 km / hr to reach Mumbai. After travelling another 50 km you stop again to recheck. You find that you have taken 2 hrs and 10 minutes to cover the 100 km. On highway you could travel faster. Now to cover balance 50 km you need to travel at speed of 43 km /hr.

Actual		New Target
Distance Traveled	Time Taken	Distance to be covered		Balance Time		Speed
50 km	1 hr 20 min	100	Km	2 hrs		50 km/hr
50 km	50 min	50	Km	1 hr 10 min		43 km/hr

You periodically check and adjust your speed while travelling. Similarly you need to review and adjust your financial plan.

A finance plan is prepared based on various assumptions about future e.g.

1. Rate of return on different asset classes like equity and debt.
2. How much client can save annually?
3. Expected inflation till goal maturity?

Various environmental conditions can influence above parameters. Periodic review helps in realigning the course of actions based on environmental conditions in order to achieve your financial goals.