What should a financial plan look like?
There are two schools of thought on this.
One of them says it should be well bound, about 50 pages of explanation and data, and at least one coloured pie chart. No doubt it includes an action plan somewhere, but the client may never find it. This would be the eminence model. Some carefully selected high priest prepares it and presents it to the client as a fact. Like a road map.
The second school has a list of long term objectives in little detail, a list of short term objectives, a list of recommendations attached specifically to the objectives, and a methodology to keep it up to date. The guide method.
Neither is perfect, but the guide method involves the client and it anticipates change.
Top down plans, like road maps seldom work.
The world can be anticipated but the anticipation does not come with a guarantee that it will be right. Road maps are a great help, but bridges wash out, construction intervenes, and unanticipated side trips can be important.
Road maps include the assumption the traveler will do exactly what was anticipated and the terrain will be exactly as pictured.
Guided plans are bottom up.
These plans continually evolve to meet circumstances as they change. They may enlist local knowledge and expertise or not, depending on need. They may be hard to explain afterwards, but the traveler is involved all the time.
Either method may reach a destination, but the guide plans tend to reach the right destination. If there is a top down plan, there is a tendency to make reality conform to the plan. There is no such need with a guide.
It has always been so.
Bion of Borysthenes was a Greek philospher who died in 250 BC. He knew about how people should relate to the real world.
“Therefore we should not try to alter circumstances but to adapt ourselves to them as they really are, just as sailors do. They don’t try to change the winds or the sea but ensure that they are always ready to adapt themselves to conditions. In a flat calm they use the oars; with a following breeze they hoist full sail; in a head wind they shorten sail or heave to. Adapt yourself to circumstances in the same way.”
The danger to people doing their financial plan
When people have a top down plan, they tend to assume everything is done. They fail to “Adapt yourself to circumstances in the same way.” They know times change and they change too, but they do little about it. They believe their “good” plan looks after them. They do not change soon enough.
They would do not better than the sailors in that circumstance.
A financial plan that is out of touch with reality is not worthy of the title “plan.” You are responsible for participating.
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