Why do we need to plan?

Planning is essential for many reasons. It allows for more efficient use of financial resources, helps us become better prepared for the future, and steers our focus on what is important. But above all, planning is essential to reaching our financial goals.

These goals vary from person to person, shaped by their own desires and circumstances. We all share a common thread – We simply cannot and will not work forever. The precious income we rely on for savings, lifestyle, travel, healthcare, education, and everything else will stop at some point in our lives.

We can’t possibly know when or how, but we know this is inevitable. We hope for a planned retirement of our choosing, but we can’t ignore that this is partially out of our control. We could be forced to hang it up at any moment.

We plan so we can attempt to take some semblance of control over our future.

We plan because we hope to do all the things we want today while becoming financially independent of our future income.

We plan, so when the inevitable happens, we have saved enough to do whatever we want to do.

This journey towards financial independence is no easy feat. Challenges will inevitably arise on our path. They come in many shapes and forms and are different for each person. But two particular challenges stand out for everyone. First, we must work with limited resources. Second, things are continually changing, and the path forward is full of uncertainty.

Dealing with Limited Resources

Unless we come from enormous wealth, our precious resources – income, assets, skills, health, and time – are limited. This limitation challenges us not only to work within the confines of our resources but also to maximize them. Doing more with less is paramount to long-term success. This limitation also presents a unique challenge by forcing us to continually make concessions and trade-offs about what to do with each resource.

We are left with a continual balancing act of decision making between things like planning for long vs. short term goals, maximizing resources vs. mitigating risk, investing vs. paying down debt, and, most importantly, planning for tomorrow and living a fulfilling lifestyle today.  

Not only can the results of these trade-offs carry significant financial and emotional implications, but they can also be challenging to understand and evaluate. That is, without a proper to help maximize our resources and reach goals more efficiently.

Managing Uncertainty

Financial planning is not an exact science. It requires planning for future unknowns by making assumptions about many wide-ranging variables. They can be internal unknowns, such as our values, health, and financial situation, or external unknowns, like tax, economic, and political environments.

We attempt to make realistic, reasonable assumptions about each variable, but accurately projecting everything along the way is impossible. Therefore, the only certainty is uncertainty. Uncertainty forces us to deal with constant change in our lives. When a new tax law goes into effect, when our goals change, or when we receive a windfall, we must course-correct with each change.

Financial planning is widely regarded as an event-driven exercise. Understandably so, considering that a large part of financial planning is managing uncertainly, therefore, dealing with change in our lives.

Change comes in all forms. It may come in the form of obstacles or windfalls, sudden or gradual, and severe or mild. Because such a large aspect of financial planning is managing uncertainty, it is widely regarded as an event-driven exercise. But if we aren’t proactive, adapting to each change can be challenging if caught on the back foot and unprepared.

Instead of being reactive, we should be proactive and continuously look ahead to minimize risks and potential loss. A proper plan can help prepare and keep our eyes forward to catch change and obstacles sooner and mitigate each event’s downside.

Finding Balance

We now know that financial planning is a constant balancing act of maximizing resources and mitigating risk through continual decision making. This balance can take a significant toll, both mentally and financially. The mental toll may come in the form of anxiety, indecisiveness, and regret. And the financial cost of a wrong decision or a surprise can range from a minor inconvenience to financially devastating.  

Mental stress and poor decision making are likely to occur from a lack of preparedness and clarity around the situations we face. Having a plan in place allows us to reduce stress and deal with life’s many decisions by creating a framework to better prepare by understanding each decision’s implications and trade-offs, ultimately finding balance in our decision-making.

A crucial element to facing these unique challenges is establishing a framework to find balance and efficiently evaluate, adjust, and make decisions to maximize what we have while looking to the future to reduce potential risks and hardships.

Advice Launch specializes in developing this type of framework by collaborating with advisors to uncover their financial planning approach, harness their expertise, identify their client needs, and build a memorable experience.

If you wonder how your approach stacks up or want to discuss how we can help, we would love to chat with you.