Planning offers an element of control. Not control of external reality, but control of you. Planning minimizes the negative emotions that arise when things turn out to be adverse. Negative emotions usually mean bad decisions.
Some aspects of a plan will minimize the extent of the adversity when it inevitably presents.
We are all our own worst enemy. We expect more good and less bad will happen to us than to others. Over time it pretty much evens out, so weak expectations get in the way. Avoid weak expectations.
Think of life as if you are a juggler. Suppose you can juggle six tennis balls easily. That is your normal life. Easy enough. If someone throws in a seventh, with effort and stress, maybe you can juggle seven. If an eighth appears, you do not drop one ball, you drop them all.
That is the kind of effect an unplanned catastrophe causes. You lost your job. You are sick and cannot work. You died. A child became seriously ill. A computer can do what you used to do.
Planning helps keep things organized and it addresses some of those issues. It creates Plan “B.”
If you have a little money saved, a job loss is not an immediate catastrophe. If you have insurance, death and disability are not financially destructive. When you plan you automatically address adversity. It’s part of the calculation. Having a plan “B” means other artifacts replace some of the balls in your array. You get to keep juggling. Planning gives you a margin for error or bad luck.
Financial planning looks complex, but it is not. The tools and techniques that address problems and opportunities are complicated, but you don’t need to know much about them. Just enough to decide if the tool is useful for you or how to choose between two similar tools. Advisors know the details and you know the advisors.
Your personal job is to build the structure within which the plan elements live. You must know you. What you value. What you will and won’t do to achieve financial independence. With those determined you can attack goals like retirement or creating a business or debt reduction or children’s education costs. Answer how much you need, how much you have to get it with and when it is required. Other questions deal with who or maybe where.
If you have the personal template and the defined goals, you can make better decisions. You can answer why to anything that comes along. Why this much life insurance? Why this kind? Why this saving amount? Why this spending or why this house or car? (You can’t save what you spend) Why this investment? (I can afford some variability because of my time line) Why pay off debt first? Why avoid debt?
Why and its partner why not, give you confidence in your decisions. Understanding the problem or opportunity and how your tools attack it motivates you. Knowing what you are trying to do allows you to use advisors effectively. You will know to ask the question, “Given what I am trying to accomplish, my time frame and standards, what tool should I use and why?” An advisor cannot oversell you if you know what you are trying to do.
Advisors are just assistants. Another tool you use to get what you need.
Just like with other tools, if you don’t choose to use an advisor, bad things can happen. Without an assistant, I personally would not try to use a Caterpillar D-8 bulldozer even though most of the damage I might cause is repairable.
Not so true with all financial adversity. Think your part through and find someone to help you implement.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772