Your Financial Plan is Wrong and That’s OK

This blog is Courtesy of Russ Thornton of Wealthcare for Women.


If you have a financial plan, at this very moment in time, it’s probably wrong.

Think of it like you’re an airline pilot.

If you’re responsible for flying your plane from Atlanta to Salt Lake City, during the course of the four-hour flight, you’ll likely be off course most of the time.

Just consider all the variables that can impact the plane and its flight path at any given moment.

However, through a series of small, ongoing adjustments to offset the impact of turbulence, headwinds, storms and more, the pilot (along with a lot of avionics) is there to make sure the flight arrives safely at its destination on schedule.

Similarly, I would argue that your financial plan is “off course” most of the time.

Again, think of all the variables that impact your financial life and your financial plan.

Things like:

  • Health issues
  • Loss of a job
  • Need to care for family members
  • Death
  • Divorce
  • Tax legislation
  • Unexpected expenses
  • And more

These are just like the turbulence, headwinds, and storms that a pilot needs to negotiate when flying a plane.

Add the uncertainty of the investment markets to the mix, and it’s easy to see how it’s unrealistic to expect your “financial flight plan” to be on course every moment of every day.

Here’s a quick financial example:

You recently welcomed a new granddaughter into the world. And let’s say you want to help her parents by paying for half of her undergraduate degree.

According to the College Board, the national average costs for an in-state public school during the 2016-2017 academic year is $24,610. For a private college, these costs averaged $49,320.

Let’s say that just a few weeks after the birth of your granddaughter, she gets her Social Security number and you set up a 529 savings account for your contributions to her future tuition.

She’s just a few weeks old. Will she go to public college? Private college? In state? Out of state? Will she get financial aid? Merit awards? An athletic scholarship?

Will she go to college at all?

Maybe as a starting point, you use the average of the public in-state and private schools to get an annual cost of $36,965. As you’ve committed to covering half of this cost, you need to save for four years of college at $18,482 per year (in today’s dollars).

You come up with a savings plan to save some money into her 529 account each month.

But after doing this diligently for 15 years and staying on track to reach your target college savings goal, it becomes obvious that your granddaughter is on a different path. She’s been cruising through her AP classes, is involved in 2-3 extracurricular activities and wants to become a neurosurgeon.

She wants to go to Duke for her undergrad pre-med program.

Tuition at Duke is $49,241 per year. And total annual costs to attend Duke average over $66,000 per year.

Quite a bit higher than you originally planned for.

How you respond to this new information isn’t the point of this article.

The point is that things will change. You’ll get new information. You’ll have to make adjustments and course corrections.

And this was just an example of helping with your granddaughter’s college.

Add other education savings, retirement, long-term care insurance, travel goals and other needs, wants and wishes to your plan and it’s pretty clear just how easy it is for your plan to be off-course as much or more than it’s on-course.

But even if your financial plan is wrong at this very moment, that’s perfectly fine.

Your financial plan isn’t the answer to a formula or a one-way ticket to a comfortable and confident financial future.

Your financial plan is simply a snapshot in time that reflects everything we know at this moment.

Your plan is actually a guide to help keep you headed in the right direction. So you’ll reach your financial goals safely and on time.

But a key ingredient in successful financial planning is having a system in place to make regular evaluations and adjustments along the way.

And with your financial plan, there’s no such thing as autopilot. Or set it and forget it.

That’s why financial planning (verb) is more important than simply having a financial plan (noun).

Your financial planning process needs to be flexible so as you encounter new information or you’re faced with new decisions or life transitions, your financial plan can easily accommodate this new data and serve as a personalized decision-making tool.

Perhaps at this point, if you accept my premise that your financial plan is wrong most of the time, you’re wondering if it’s even worth the effort.

I mean, why bother with financial planning in the first place?

While I’m clearly biased, I think financial planning is one of the most important things you can do for yourself and your family. And this transcends matters dealing solely with money.

Financial planning is a valuable process through which you can better clarify your values, your goals, and your priorities. That alone is worth the effort if you ask me.

But having a living, breathing financial decision-making framework that you can rely on as you encounter life’s headwinds and storms can also deliver peace of mind and reduce your anxiety when faced with a decision.

Especially for a choice, you didn’t see coming.

So think of your financial plan much like a flight plan.

I doubt you would feel comfortable getting on a plane if the pilot didn’t have a flight plan.

Why should your financial future be any different?



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