Much financial planning fails because people start in the wrong place. You need to know what you want out of it before buying products and advice. When you start with the “HOW?” questions, you can’t distinguish the ones that might work for you. And there are many choices.
“How?” is in the middle. Better to start at the beginning.
“If you don’t know where you are going, you will probably end up somewhere else” Laurence J. Peter, inventor of the Peter Principle.
If you know the answers you want or have a pretty good idea of the answers, you are almost sure to reach an acceptable place. It’s like an extended trip.
Before the methods appear, you should think through some questions. All the questions are “W” questions. The order isn’t important because you need all of them to make your journey easier.
An edge is an edge. Use any you can count on.
“To know what one really wants is a considerable psychological achievement.” Abraham H Maslow
What do I want out of my life? There are likely several of them. Put them down in enough detail to understand the purpose of getting each of them. The common whats include a pleasant lifestyle, personal growth, ability to help my partner and children, educated and successful children, security, maybe financial independence, retirement, and a margin for error.
What resources do I have to get those? The money I have now, the money I will earn in future, the money I might inherit, time, energy, skill, experience, work ethic, and attitude all matter. What resources must I develop?
What limitations must I impose on my lifestyle now to ensure a good fit of wants and resources? Priorities when allocating resources.
Who is involved? There are two groups. The close being, spouse, children, business partners, and extended family. The more remote group includes professional helpers. Lawyers, accountants, investment specialists, insurance professionals, spiritual advisors, doctors, personal trainers, dentists, and more. Don’t forget yourself. Who are you, your values, your important hopes for a life well-lived?
Where will I be? What constraints does that impose? Tax structure, commute, cost of living, established relationships and networks. Would I move under some conditions? What are those?
When do I expect to have my wants? Time means everything does not have to happen at once. Set your time priorities.
What if? Not every life works out as expected. Risk is everywhere and always. You can move it around some, but you cannot eliminate it. You, or someone close to you, might die or become disabled. A spouse might leave. Your business or employer might fail or move. Control is impossible when addressing the future, but things you can anticipate will pass through more easily than surprises.
Why do I want these particular factors in my life? Life is tough, and “why” will supply the motivation to make the necessary decisions and changes as you go. Without a why every adversity will tend to demand a change. Changes are often needed, but they add to risk.
Why not? Every decision automatically means you exclude all the other possible choices. Time, money, and energy are very limited. You cannot do everything. Every decision has an opportunity cost. Charlie Munger says managing that fact is essential to success. “Everyone should be thinking about opportunity cost all the time” If you keep track of opportunity costs, you will see and repair weak decisions sooner. You don’t really have a firm handle on your life vision unless you understand the “Why not” part.
What aspects would I compromise? That’s a challenging question. You should have at least a sense of the answer. Most people might decide to retire a few years later, but they are not likely to give up on their children’s education. Everyone is different. Ask yourself the question once in a while.
The result is your vision. What a psychologist friend has called Hopes, Fears, and Expectations. Maybe add aspirations.
What then? When you understand the itinerary for your voyage, then and only then can you select methods. There are lots of those, and your advisors are valuable here. They are about tactics. Tactics are an often changing part of life, and it is not worth your trouble to keep up to date. Tax accountants, lawyers, and other specialists spend hundreds of hours a year keeping up. Your time is better spent elsewhere.
The tactics they recommend will be easier to assess if your vision is clear.
Finally, you have to “Just do it!” Logistics. You would be amazed at how many carefully developed plans are never implemented.
There are the three Rs, just like elementary school.
Record what you are doing and why. And then keep track of what happens.
Review to see how it’s going compared to the vision. Then learn from when it isn’t going where it should.
Revise if necessary. This is where people get confused. Quitting a tactic that isn’t working is a sound move. Quite likely, the context of the decision changed. Quit quickly on bad tactics. Be very reluctant to give up on your vision. That is the never quit part of the old wisdom.
Vision identification is about organizing your thoughts and resources. Here’s why: “Organizing is something you do before you do something so that when you do it, it is not all mixed up.” A.A. Milne
Make a plan, work it, expect change, and adapt as needed.
Where good plans end up, “I may not have gone where I intended to go, but I think I have ended up where I needed to be” Douglas Adams
I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, 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. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.
Be in touch at 705-927-4770 or by email at firstname.lastname@example.org.