This past year I began incorporating financial planning into my practice. For years I had been more of an investment manager and financial advisor but never a planner. To clear up the jargon, an investment manager evaluates and selects securities to construct a portfolio for clients. A financial advisor gives advice on an array of investments and coaches clients through good and bad markets. A financial planner helps individuals set objectives and create a plan to achieve their goals.
In day-to-day life I am not much of a planner. I kind of like to fly by the seat of my pants. When my family travels to a new city, I never map out where we are going or what we are going to visit. I prefer to wander and see where we end up, which usually leads to a fight and the five of us lost in some obscure part of town. Don’t believe me—ask my wife about our trip to Montreal a few years ago.
When it comes to college or “retirement” planning, you can’t really afford to fly by the seat of your pants. You have to save, and you need a plan to manage your assets accordingly. Hoping that you’ll have the funds to pay for Junior’s first year at Michigan is not a good plan. Maybe your daughter surprises you with news that she’s getting married. It can be extremely challenging to fly blind.
My problem with financial planning is the assumptions it makes. We run numbers and scenarios through computer models, and they spit out a plan. Fortunately or unfortunately, life is not like this. Markets don’t go up 5% a year, interest rates go down, you lose your job, Junior decides he wants to go to medical school after he gets his MBA, and the inheritance you think you may receive doesn’t pan out. Mike Tyson said it best, “Everyone has a plan until they get punched in the face.”
Another wise person once said, “He who fails to plan, plans to fail.” The statement easily applies to financial planning, but instead of calling it that, can we call it “financial preparedness”? Planning assumes static inputs with a predictable outcome, but things are never that neat and tidy. I like my new phrase, financial preparedness. Being prepared is being ready for what might occur down the road, nimble enough to turn on a dime, but also honest enough to admit we never know what’s around the corner.