I’d like to revisit something I’ve written about before. It’s the idea of calling financial planning what it really is . . . a guessing game.
Back in 2015 I wrote about Financial Guessing.
And more recently, I included some thoughts on guessing when I wrote about Collaborative Retirement Management.
My buddy Carl has written about this topic as well.
Today, I’d like to dig a little deeper.
Let’s start with an inventory of some of the guesses we’re already making in our financial (and lifestyle) planning:
- How long we’ll live
- How healthy our remaining days will be
- What tax rates will be in 10 years, 20 years, 30 years, etc.
- How much our general cost of living will rise over the next 3-4 decades
- Will we each have our own car in 15 years, or will we all rely on Uber or Lyft or self-driving Teslas
- What will our mobile phones be like in another 10 years, or will we even have mobile phones then
- What will the investment markets do in the future
- Will interest rates stay low or will they rise
- Will my parents need long-term care and/or living assistance
- What will college costs look like in 10 years
- Will Social Security still be there when I’m ready to retire
- Will today’s “too big to fail” companies still be around in 20 years
- What’s Medicare going to be like in 5 years
- I have a pension, but will my company continue to be able to pay it for the rest of my life
- How will health trackers like Fitbit and Apple Watch impact real health insurance costs (and care) over time
- Where will you be living in 5 years or 25 years
- What if you’re counting on a future inheritance that might not be there
- Do you really have job security, or just a job
- What will life be like if we’re able to travel to and live on other planets
- I could go on, and I bet you can come up with plenty yourself
Let’s face it. There’s a whole helluva lot we don’t know about the future, whether it’s 5 minutes from now, 5 years from now, or 5 decades from now.
What we do know is that things will change.
And the pace of change seems to be accelerating.
So if we can agree that the future is uncertain and financial planning, which is based on planning for the future, is really just a big pile of guesses, then what’s the point?
Why bother planning at all?
Should we just sit back and let our lives unfold?
No, we shouldn’t.
And I’m talking to myself here just as much as I’m talking to you.
A couple of relevant quotes might be helpful here:
“Plans are of little importance, but planning is essential.” ― Winston Churchill, former British Prime Minister
“Few people have any next, they live from hand to mouth without a plan, and are always at the end of their line.” ― Ralph Waldo Emerson, poet and essayist
“A good plan violently executed now is better than a perfect plan executed next week.” ― George S. Patton, former Officer in the U.S. Army
“To achieve great things, two things are needed; a plan, and not quite enough time.” ― Leonard Bernstein, composer and conductor
So, based on the quotes above, some folks think planning is worthwhile.
And here it is:
Even though a financial plan is indeed a big pile of guesses, it’s the process of thinking about and making those guesses that are important.
You see, financial planning is a verb. It’s something you do. It requires action.
A financial plan is a noun. A thing. An inanimate object.
As Churchill is quoted above, “planning is essential.”
And this is why I believe so strongly in the positive impact of financial planning.
We know these are guesses. We know the plan is wrong as soon as we put it together.
But by having gone through the exercise of making educated guesses and putting some structure around them, we can then regularly revisit and adjust our guesses so they become more accurate over time.
They’ll still be guesses. But we can make them better, more educated guesses as we get more information and experience along the way.
Even if you’ve been working on your personal financial plan for years, and plan to retire next week, there are still some fundamental guesses involved in there.
So your guesses rarely, if ever, will become known quantities.
There’s not some point in time where everything will suddenly fall into place and the light bulb will go off and your plan will be “right.”
Sure, you’ll hopefully accomplish some important achievements along the way, but even in hindsight, your goals are merely guesses too.
So, let’s recap.
We can agree, I hope, that financial planning is based on guesses. This is a feature, not a bug.
But it’s these guesses and the process of arriving at them that makes financial planning worthwhile.
For instance, I’ve had discovery meetings with couples who have been married 25+ years. And based on some of the questions I’ve asked and my patience in letting each person answer them, I’ve had spouses turn to each other and say “I never knew that about you” or “I never would have guessed you felt that way.”
This isn’t as much a reflection on me or what I bring to the table as it is about the value of having a safe, non-judgemental space to talk about your money and your life and what’s really important to you.
Financial planning is more art than science.
It goes well beyond numbers and spreadsheets. Or it should if you ask me.
It’s about making important decisions in the face of an uncertain future. It takes courage and no small amount of self-awareness to do this.
Having the opportunity to explore this with folks like you and be a trusted partner in making smarter, more informed guesses (and decisions) along the way is something I take very seriously.
It’s also something I get tremendous joy from.
So, go ahead and make some guesses.
It’s not about whether your guesses are right or wrong. It’s about making small, regular adjustments to your guesses over time and as you get more information and clarity.
This will help your guesses become educated guesses.
And your educated guesses can turn into things like retiring on your terms.
Or being able to give to your church.
Having the resources to support your parents or your children, or both.
Knowing you can invite your family on your next vacation.
And the list goes on.
Maybe a big pile of guesses ain’t so bad after all.
P.S. – Are you making any of these 7 Deadly Sins of Retirement Planning?