By CARL RICHARDS
I read somewhere that average Americans will spend more time planning their vacation to Disneyland than they will planning their financial future.
I’m not sure that’s correct, but it would’t surprise me. There are a number of reasons why we are hesitant to spend time planning for our financial future, but the biggest one is that we have confused the process of planning with the end product, a plan.
Financial plans are worthless, but the process of planning is vital. Let me explain the difference.
Creating a traditional financial plan starts by making a bunch of assumptions. These assumptions can be about inflation, what the stock market will do, how much you will save, when you will retire, how much you will spend in retirement and even when you’ll die.
If you have been through this process, you know that it’s very uncomfortable. We know that no matter how hard we try, we will definitely be wrong.
This is one of the cruel ironies of any plan: You don’t have the information you need when you start. This is true when you start a restaurant, a business or are planning the rest of your financial life.
If we accept the fact that even the best plan will be wrong, we can focus our energy on the process of planning instead of obsessing over the assumptions.
Sure we need to chart a course where we think we are headed, and this will involve making some assumptions about the future. But they are just guesses; make them and move on.
Think of this as the difference between a flight plan and the actual flight. Flight plans are really just the pilot’s best guess about things like the weather. No matter how much time the pilot spend planning, things don’t always go according to the plan.
In fact, I bet they rarely go just the way the pilot planned. There are just too many variables. So while the plan is important, the key to arriving safely is the pilot’s ability to make the small and consistent course corrections. It is about the course corrections, not the plan.
Once you have a general idea of your own destination, the focus should shift to what you can do over the short term to get there. Focus on the next three years. Thinking in shorter time frames inspires us to act instead of worrying about all of the things that are out of our control.
So set a course quickly. Realize that you will be wrong, and plan on making course corrections often.
I’m not sure that’s correct, but it would’t surprise me. There are a number of reasons why we are hesitant to spend time planning for our financial future, but the biggest one is that we have confused the process of planning with the end product, a plan.
Financial plans are worthless, but the process of planning is vital. Let me explain the difference.
Creating a traditional financial plan starts by making a bunch of assumptions. These assumptions can be about inflation, what the stock market will do, how much you will save, when you will retire, how much you will spend in retirement and even when you’ll die.
If you have been through this process, you know that it’s very uncomfortable. We know that no matter how hard we try, we will definitely be wrong.
This is one of the cruel ironies of any plan: You don’t have the information you need when you start. This is true when you start a restaurant, a business or are planning the rest of your financial life.
If we accept the fact that even the best plan will be wrong, we can focus our energy on the process of planning instead of obsessing over the assumptions.
Sure we need to chart a course where we think we are headed, and this will involve making some assumptions about the future. But they are just guesses; make them and move on.
Think of this as the difference between a flight plan and the actual flight. Flight plans are really just the pilot’s best guess about things like the weather. No matter how much time the pilot spend planning, things don’t always go according to the plan.
In fact, I bet they rarely go just the way the pilot planned. There are just too many variables. So while the plan is important, the key to arriving safely is the pilot’s ability to make the small and consistent course corrections. It is about the course corrections, not the plan.
Once you have a general idea of your own destination, the focus should shift to what you can do over the short term to get there. Focus on the next three years. Thinking in shorter time frames inspires us to act instead of worrying about all of the things that are out of our control.
So set a course quickly. Realize that you will be wrong, and plan on making course corrections often.
***********************************************
Interesting write-up from a blogger on financial planning.
And to add on to this, I feel, when planning for financial security for ourself and the family, nothing should be at the neglected end in order to achieve the desired amount of money in the trust funds or fixed deposit accounts.
(Of course, this is after putting aside the must funds such as heatlh insurance and all other insurances, savings and future educations expenditures)
Personally to me, those people who think that they are in the financially secured and happy zone, but knowingly they are limiting themselves to enjoy only the most basic things in life -- are stridentyl foolish and wrong way of getting their book work-out.
Having to live this short life and being deprived of the freedom to purchase, is a failed financial 'gain'.
What is the point of putting aside stacks of money but owning below average possessions in this millennium (why i stated this millennium -- some still uses items they bought back in the 80s but has got hundred of thousands hiding in the big piggy bank), and those who are always at the cost cutting and buying cheap in term of foodstuff and articles at home, and even to the point of wearing hypermarket clothings for the whole family?
Again, what is the point hoarding when you're being deprived now?
What is the point having your monies stacked away (presumably you're there to enjoy it when you're retired or for your kids?) but only possess 7 shirts and 3 pants to work and play?
How sure are you that you're going to retire healthy and be enjoying your hard-earned monies?
What if you're crippled before you get to indulged yourself into something good and nice now when you're able?
So, basically, if you're going to be deprived of loads that life (now in this era) can offer now.....stop the 'dreamland' financial planning bulls and live life in reality and start enjoying your life because, hey, you just wouldn't know when you'll be lying six feet under...(or in another case being cremated).....
Give it a thought....really.
2 comments:
1. It’s all about how we plan and how we maintain and consistent with our plan… Frankly speaking, I’d never put aside even 10 bucks for my savings until last week when I’ve made decision to make a change in my life at age of 31. Though it sounds awful, but at least I did something good to myself…;D
2. Back to the key word, “HOW WE PLAN”… the most sad thing that ever happened in our life – when we unable to put aside some money for ourselves. Though you have plenty money in the bank, but if you fail to reward yourself, it is a greatest failure of all. (But don’t overly reward yourself!)
3. I am not financial savvy, but what I could suggest, think smart and use several financial instruments available in the market today to put aside your money without ‘choking’ your own neck to eat delicious foods, dressing beautifully and having great life. ( give a reasonable percentage for every instruments and give higher percentage to the one that will gives you highest ROI)
4. Don’t repeat my mistake: wait for a big jackpot so I can make my initial investment. If you have 100 bucks left in your pocket, you could start funding your account for at least 10 bucks. The important rule here; now or never.
5. MY GOLDEN RULE for money planning: never use the word ‘SAVING’, it’s pathetic word that makes your life miserable. I prefer to use the word ‘FUND’ … Saving sounds like you’ll never get enjoy in your life whilst fund makes you feel like your money will grow every day because you are funding some of your money in your own account.
6. You have a free will, you can either choose a hard or an easy life – it is all up to you.
Thanks and I agree with you totally.
Rule no1 is start putting aside some funds accordingly. Rule no2 is never be deprived while trying gain personal 'financial strenght'.
Post a Comment