After 16 years as a High Net Worth Private Banker I opened my firm in 2011 to create an unbiased and client-centered wealth management firm. As an independent advisor I can now solely focus on helping clients define and pursue their unique goals. Read More
Balanced Money | Balanced Life
February 23, 2015
Everyone has a plan until they get punched in the mouth
As a CERTIFIED FINANCIAL PLANNERTM, I have always appreciated the irony in this quote by Mike Tyson.
Don’t get me wrong; I am a big believer in planning especially when it is flexible and adaptive to change, but I feel our industry has turned a good tool into a bad product. In the following article I intend to go over some of the potential limitations of a financial plan and why adaptive planning is important in today’s increasingly complex environment.
A financial plan is undeniably an important tool as I spoke extensively to in my article on the Winchestor House. It allows us to gather the information we have, and plots a course to help us pursue our goals. What’s important to remember, however, is that the plan is only a tool to establish location and provide direction at a single point in time. Once it is put into action, many of the underlying assumptions are sure to change. Things happen so fast today that most assumptions used in creating plans will be wrong within a year, much less 20 years. When we live in the future we are relying on luck. There’s an old Yiddish saying that goes – We plan, God laughs.
To reiterate – a plan can be very useful, but it is just a tool and the beginning of a longer term process. Adaptive planning is a process (see prior article, the power of process) to help identify and provide direction to life’s unpredictability. The adaptive approach restores order and control and can provide preventative maintenance options to avoid future problems. The adaptive process is less about tomorrow and more about living in the present. What can we do now to address the current environment and how should we change course in light of recent events? Mike Tyson just broke my jaw –congress is passing some legislation that might impact me - what are some of my choices and how will they impact my life? We have to live in the present because it’s the only place we can maximize our own self-interests.
Besides the external events of change, often its our own flip flopping that can derail a best laid financial plan. In a world of change and choices, Psychologist Barry Schwartz takes aim at freedom of choice. In Schwartz's estimation, choice has made us not freer but more paralyzed, not happier but more dissatisfied. Every decision feels like we are exposing ourselves to unknown risks and leaving the comfort of options. Adaptive planning incorporates flexibility and generally allows for changes to be made when desired and or necessary to adapt to personal or external needs.
Adaptive planning can:
1. Help you develop a business plan for life. My distinction is that a business plan is based on cash flow and tax impact, rather than on the purchase of insurance and investments.
2. Properly apply tax strategies in relation to estate planning concepts and money management. Many are overwhelmed by the thought of tax or estate planning or the complexities surrounding financial products. As such, they either do nothing about the first or make big mistakes in purchasing the second. Both add up to lost dollars and earning power.
3. Coordinate all elements of the planning. Decisions in one area can dramatically affect results in another. By conducting an impact analysis (What ifs) of your options you can see how each component effects your overall potential results.
4. Help you find and refine goals and identify and adopt new opportunities. Goals are important, as they are the “why” behind the financial decisions we make. They are the reason we forgo current spending to contribute to future needs; why we protect ourselves from manageable risks, and why we need to make smart choices with our money. It’s unlikely we hit our targets if we don’t first take aim.
5. Helps you plan for the long haul. This would include retirement income planning, long term care needs, generational and legacy gifting.
Remember: the ongoing process of planning, not the plan, will keep you headed in the right direction and out of behavioral mistakes. Or as General Dwight D Eisenhower said, “Planning is everything, the plan is nothing.”
Gardner Sherrill, CFP®, MBA, provides oversight and guidance for a successful retirement. To learn more visit sherrillwealth.com. This information is not intended to be a substitute for specific individualized tax or legal advice. Individual circumstances will vary. Please see your tax professional regarding your specific situation. Securities offered through LPL Financial, member FINRA/SIPC The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Published in Bradenton Herald: February 23, 2015
By GARDNER SHERRILL |Investor’s Column