How Often Should You Review Your Financial Plan?

How Often Should You Review Your Financial Plan?

When should you start making your financial plan?

The truth is you should do it as soon as you get your first real job. Are you familiar with “compounding,” and how it works?

Take a look at an example to see how it does:

Grace Groner worked as a secretary for Abbott Laboratories for more than 40 years. How large would you expect Grace’s retirement fund to be?

Not too large. Maybe, $50,000 or $60,000 or so.

Well, even on a secretary’s salary, she ended up with $7 million. She started with just a $200 investment, buying three shares of Abbott Labs in 1935. She never sold. And with the help of dividends, share splits, and reinvested dividends, those three shares bought for $200 total appreciated to $7 million in value upon her death in 2010. She had held onto the shares for 75 years.

Now, Grace was the benefactor of a high-growth company. Her shares averaged 14.97% growth per year for 75 years. You can’t expect that kind of growth with the majority of stocks.

Here’s a Realistic Example of How Compounding Works for You

Today, AT&T is one of the most stable big companies. They’re renowned and beloved by investors for the consistent dividends they pay yearly.

Let’s say you buy just seven shares of AT&T $37 each. That’s pretty affordable: you pay just $259 total. AT&T pays slightly more than a 5% dividend.

After year 1, you have $271.95. You made $12.95 in interest from dividends. After year 2, you now have $285.55. You earned interest on your $259, plus $12.95 in dividends. During year 2, your earnings from dividends were $13.60.

No big deal, right? Well, say you work for 30 years. Your seven shares bought at $259.00 are now worth $1,119.38!

Or, say you really like to work, and you work 40 years. That $259 is now worth $1,823.36.

This is the easiest way for most people to build wealth. And that’s why it’s important to start planning, at some basic level, for retirement literally right away.

How Often Should You Review Your Financial Plan?

In your younger years, you should review yours during any major life change. When you get a job, a promotion, or a big salary increase, that’s a great time to review your plan. You should also do it if you get married, divorced, or have a birth or death in your family.

As you near retirement, you should review your financial plan yearly. Who knows how different life will be in two decades? What new regulations will the government pass? How will the American markets change by then?

It’s impossible to know. But, it’s very important to follow these general guidelines as you age.