Think back to trips you have taken to places that you hadn’t been before. Did everything on the trip go exactly as planned? Probably not. At least some details of the trip likely worked out differently than what you expected. Now think about planning for the financial aspects of what you want your future to look like. Do you believe everything will fall into place precisely as you plan? Most of us, despite our experiences in the past, believe our plans for the future will unfold just as we want.
The way we think life will be and the way it actually is differs greatly. Life usually doesn’t progress in a step-by-step linear manner. Instead, life tends to be messy. It would serve us well to anticipate this when making plans for the future.
Adjusting Your Course Along the Way
If you are willing to execute mid-course adjustments to your financial plans, your chances of good outcomes skyrocket. What you want in the future often changes over time and therefore your planning framework needs to change. A financial plan is essentially a point in time assessment plotting a course toward a destination fully anticipating the plan won’t work precisely as expected.
Because financial plans contain absolute numbers with explicit savings percentages and investment returns, it’s easy to think these plans are like math proofs. Actually, numbers are just expressions that make goals understandable and actionable. Despite the mostly useless “success rates” that many boilerplate planning programs spit out, the future is always unknown.
Your Future, Your Territory
Financial planning should always be oriented around what you want your future to look like. I’m not sure I recall a single client over the years where their future vision didn’t change over time, sometimes materially. That just comes with the territory.
The best approach is to embrace planning, a verb, over plan, a noun. I have lost count of the number of times a prospective client has said they have a financial plan but it has never been updated or changed, often many years after the original plan date. While that is better than nothing, not much better since all of the variables in the plan are likely different today. Financial planning is not a set it and forget it type exercise.
Financial Planning Isn't an Appetizer
Of course, many imposter financial advisors, (the non-fiduciary type), use financial planning as an appetizer to the main course of selling expensive investment or insurance products that often have nothing to do with the desired planning outcomes. There are names for this but financial planning isn’t one of them.
Your Behavior-The Most Critical Variable
In planning review meetings with clients, we look at the critical variables (savings, spending, and actual returns) in relation to what was planned. One category might make up for another in the short run, but overall these have to stay in sync over the longer term. Better than anticipated investment returns might bail out undersaving for awhile, but not forever. Saving is usually the most crucial input in financial planning and also the variable that often changes in plan updates. In 90% of the cases, the assumed savings rate in the plan has not actually been met, and therefore outcomes, (the financial resources to meet future living expenses), have to be adjusted downward. It seems our intentions to save far outpace our actual willingness to save. That points directly to the human behavior component that rarely is addressed in financial plans. As economists say, ceteris paribus, all things being equal, behavior is usually the single most important factor in financial life.
Detours, roadblocks, accidents (mistakes), competing destinations (priorities and trade offs), and numerous other obstacles can appear along your journey toward a secure financial future. The best time to start planning for your future was probably 10 or 15 years ago. The second best time is now. Start there. Ready for a real conversation?