Control Variability

Financial planning follows an order.  Some people skip steps and go back later to fix that.  Others go very quickly and reach the pinnacle.  Some miss the first step and events overtake them.

Life is not simple, but we can deal with the variable aspects if we know they are there. Inability to predict the future calls for active management.

We avoid or overcome variability by expecting it and setting plans in place that will mitigate the problems and exploit the opportunities. 

Recognize that time is a fundamental piece of each plan.  We cannot do everything at once so there needs to be some order to things.  Once we recognize the idea of order, there automatically follows the ideas of  goals, resources, limits and priorities.  Planning optimizes the use of resources and attaches a time line to goals.

Since time is an important variable, how do we address it?

Have a long term plan.  This will help to address the idea that everything does not have to happen at once.  Education.  Career.  Family. Home. Debt. Education again, not yours this time. Retirement.  Security.  Estate.

It is very difficult to think long term in the chaos of day-to-day.  Have a short term plan. A budget.  That helps us stay on track.  That “extra” money this month is probably the car insurance due two months from now.

Have a safety fund.  A reserve against short term annoyances.  The car broke.  The employer moved to Idaho and you did not.  Someone is sick.  In the beginning an unused line of credit may suffice, but recall that loans must be repaid.  Develop your own liquid resources.

Recognize that you may not get enough time.  For most people, the ability to work is their greatest asset and it takes a long time to liquidate that asset.  Use life insurance and disability insurance to protect its value in the event you are not permitted the time.

Have instructions to deal with time shortages. Powers of attorney and a will can make a troublesome transition less painful. Be sure to make mote of passwords and the location of documents and various accounts.

Once the foundation is in place, you can build a strong structure.  The foundation will provide options and efficiency for later decisions.

Financial planning is about balancing financial resources in time.  With no clear idea of future needs it is easy to build a lifestyle that is difficult or impossible to support forever.

Next stages involve, controlling debt, building assets that produce income, building assets for growth, and acquiring assets that please you.  Maybe a fine watch, or a painting, or an antique, or a complete set of Beanie babies.

Each segment has financial tools and professional helpers.  Try to find the ones that make your task easier.

Good financial plans will not guarantee success, but poor or absent ones contribute to failure.  Think it through before making commitments that will turn painful.  It is not much more than organized common sense.

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. Contact: 

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