I enjoy working on the Financial Planning process with clients. It’s a big part of Bootstrap Capital and one that I find rewarding – and I think it’s a great fit for the way that families need to think about their finances. But it is an ephemeral process that is difficult to imagine. Even after I spend significant time describing it to clients, it’s tough for them to understand until they go through the process. This is one of the reasons that I only charge clients for plans after they are delivered. I want to make sure that the client is satisfied with the process and feel that they have received good value. I’m please to say that I have never had a client that decided not to pay – although I remain open to that outcome.
Here’s one of the issues: people like concrete answers. Often, we enter the planning process expecting A Number. Or some concrete quantification of exactly what will deliver our goals. That’s not the way life works. The future is unknown. But more importantly it is unknowable. What we can do is make decisions that increase or decrease our likelihood of hitting our goals - and that’s what financial planning is about. We force ourselves to think probabilistically about the future. So, at its heart, Financial Planning is a process that allows us to take concrete actions in the face of an unknown future.
I talked a little about this in a past blog post. But let’s explore this a little more. We remember our lives in a linear fashion. Today I left for work, took the train, had pizza for lunch, and so on. We probably think about the last ten years of our lives like this:
At the time, our lives seemed much less of a sure thing. “Will I get promoted?” “Can I afford a new house?” It probably felt much more like this:
As we went along, things happened: We made decisions. We got that promotion. Then, it took longer than expected to get pregnant, but we had twins! - That kind of stuff. What happened ended up looking a like one path from a great number of possibilities. Some of it was driven by our goals, desires, motivations and energy. But a lot of it was random chance, luck and serendipity. The exact recipe was not ours to know in advance. Our lives end up a lot more like this:
The Yiddish proverb, “Man plans and God laughs” springs to mind. We can only influence the outcome of our future. With Financial Planning, we attempt to do that in a positive way. We build a framework which allows constructive decisions that increase the probability that we hit our goals and do it in a way that aligns with our values.
Given this backdrop people are right to ask: What good is planning? I think there are two important points that planning addresses. First, it builds a framework to allow us to take on our bigger life goals. Although we don’t often get concrete answers, we do have a model that allows us to take actions now with the expectation that they will drive us in the correct long-term direction. Second, and just as importantly, it helps us to achieve our short- and medium-term goals as well. We are not always wrestling with big picture issues like “Will I have a secure retirement?” Often, we just need to know what to do this year or next week. Things like: “Will sending my kid to a private school derail my long-term goals?” Or: “Can we afford to take an extra-long vacation next year?” It is particularly comforting to be able make short term decisions in the context of a long-term plan.
At the end of the day, financial planning allows us to take actions today that are part of a larger vision – despite the fact the future is unknown. This gives us the peace of mind of knowing that our actions now are aligned with our values and goals and we are not making decisions today at the expense of our future.
Note: The contents of this site are general in nature and not intended as specific investment advice. All investments are subject to risk; including loss of investment value. If you have any question regarding investments or concepts in these pages, please consult with an investment professional.