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.
I recently turned twenty and needed to get some advice on budgeting on a weekly basis. I've just moved into my first apartment and was struggling with money. I found a fantastic financial planning adviser who greatly helped me to plan my budget on a weekly and monthly basis. I am now also able to make some savings each month.
ReplyDeleteHenry Hansen @ Ethica Private Wealth Specialists