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No nuance here. Much of what is portrayed as “financial planning” revolves around garbage calculations based on assumptions that probably won’t hold true. Otherwise, it’s all fine. Ha! Unfortunately, many planning software programs are keyed to spit out very detailed “success rates” and investors have become addicted to this false precision.
We believe that the entirety of financial planning needs to be built upon reality, and this reality is that the future is unknowable. The future is imprecise.
I can think of more than a dozen synonyms for imprecise including vague, broad, fuzzy, approximate, and loose. None of these words convey anything that’s desirable. That’s why “mainstream” financial planning focuses on what investors want, precision.
Embrace Reality
It’s not like you have a choice. Uncertainty is inescapable. The future is going to be uncertain; you can deal with that reality now or deal with it later. You can’t alter this uncertainty. The best way to address this is by diving head first into the pool of reality.
By confronting reality today, you increase your ability to head off a possibly errant financial trajectory and change course if needed. Alternatively, you can wrap yourself in the comfort of “success rates” that are meaningless and wait until you have lost the benefit of having time on your side.
We are hooked on precision. Think about how we are glued to the weather forecast. Is it going to rain tomorrow? Is that tropical storm going to make its way here next week? No one knows for certain but we think they do!
The Truth About Financial Planning
Here’s the unvarnished truth. Financial planning has precious little to do with what happens or doesn’t happen in the financial markets this week or next month. Just like the weather example, no one knows for sure and it makes no sense to get twisted in knots about something you can’t influence or control. Financial planning has everything to do with what matters most to you, what you’re trying to accomplish.
The illusion of precision promises a “quick fix” for problems. In actuality, the only solution is to address uncertainty through a financial planning process built upon reality. Start there.
Related: The Retirement Adequacy Question: Confusion to Clarity