Goldilocks and the 3 financial plans
Getting your financial plan "just right"
Happy Wednesday!
After writing last week’s article on the potential cost of being “conservative” I’d planned to follow it up this week with another alliteratively titled piece on being “aggressive.”
Maybe something like the “artificial allure of an aggressive approach.”
But rather than write a counterpoint to last week, I decided to tackle the REAL issue as I see it.
First, a little context…
As you’ll see in the final section of this 2013 article, in the past I would create 3 financial plans for each client:
This approach was based on the idea of creating an “ideal” plan or what you’d love to do if you could. This was designed to capture and plan around your hopes, dreams, and ambitions. It didn’t need to be, nor was it designed to be, firmly rooted in reality.
This was an exercise in dreaming BIG, which is a challenge for many folks.
As a result, ideal plans typically weren’t sufficiently achievable or sustainable.
Helpful exercise, not a good plan.
The second plan was “acceptable” or what you’d be willing to do and still be happy if you needed to. This was designed to be more of a needs-based plan.
Your acceptable plan was very much a reality-based planning exercise. This is what most folks expect when they embark on creating a financial plan.
Acceptable plans were commonly so conservative (there’s that word again) in nature, that they were easily within reach. In fact, these plans often had so much comfort and confidence that it meant a client was sacrificing their present life in exchange for an overconfident future.
Once again, helpful exercise, not a good plan.
Finally, the third plan was my “recommended” plan that would fall somewhere between your ideal and acceptable plans.
Your recommended plan is designed to get as close to your ideal plan as possible while still having enough comfort and confidence that we could achieve your goals AND manage and adjust your plan as needed in the future.
To keep it on track.
No matter what the future may bring.
The recommended plan is your “just right” plan (more on that below).
It’s a plan that balances living a great life today while also being sufficiently prepared for an uncertain future.
This “3 plans” philosophy” still serves as a foundational underpinning to my planning beliefs and approach.
However, I found that creating, managing, updating, reviewing, and discussing 3 versions of your financial plan could quickly get in the way of actually making progress with your personal finances.
So today I focus on a single plan for my clients.
But we can’t just push a button and leap ahead to your “just right” plan.
We start by creating what I deliberately call a “first draft” of your plan as it’s my interpretation, based on the financial data and qualitative information we explored during our Discovery conversation, of where you are and where you want to go.
Then we begin “negotiations.”
You’re basically negotiating between your present and future selves, which is all financial planning really is.
My role is to facilitate these negotiations.
To help you identify and understand the trade-offs between the various choices you might consider.
For example:
How much am I willing to save today to provide for a more comfortable and confident future?
How much investment risk?
When do I retire?
How much can I afford to spend in retirement?
Do I want to leave money to my family or give it to them now? Or not at all?
Will I feel more comfortable with the lump-sum pension or monthly pension payments for the rest of my life?
Can I afford to…?
What might happen if…?
What if something happens to…?
The goal of these negotiations - where I play the facilitator and guide - is to come up with the plan that is most personal and specific to YOU.
Not some cookie-cutter, off-the-shelf, paint-by-numbers financial plan based solely on demographic averages and rules of thumb.
As I’ll remind you again in a few paragraphs, the key word here is personal…
And of course your plan has to be sustainable, for the rest of your days.
That’s where I provide some guidance or suggest some alternate, what-if scenarios to see how your plan holds up under different decisions or potential futures during the negotiation process.
As I’ve written many times before, it’s not about “the plan”.
It’s about YOUR plan and the ongoing process of planning… collaboratively building, regularly updating, and adjusting (as necessary) your “working” financial plan.
I call it your “working” plan because it’s never done. Our work is never finished.
Because life, tax legislation, interest rates, market swings, health challenges, unexpected expenses, and everything else life will throw at us.
Your financial negotiations between your present and future self are ongoing.
But if conservative can be costly as I suggested last week, should you be more aggressive?
Maybe.
But probably not.
Again, words like “conservative” or “aggressive” or “moderate” or similar terms that get thrown around by both clients and advisors are completely subjective.
They’re unhelpful at best, and potentially harmful at worst.
The solution?
Think back to the story of Goldilocks and the Three Bears.
As I’m sure you’ll remember, Goldilocks finds herself in a strange house.
And she finds 3 versions each of:
Porridge
Chairs
Beds
Clearly she doesn’t want any of these when it’s too hot or hard (think aggressive), nor does she want the too cold or too soft (think conservative) options either.
She wants the “just right” porridge.
The “just right” chair.
The “just right” bed.
And that’s what you want too, even if you’ve never considered it in these terms.
You don’t want to be conservative.
You don’t want to be aggressive either.
Neither do I.
You want to be “just right” in your financial planning and decision making.
As I pointed out last week, your personal version of “just right” might look very different from someone else.
In fact, it SHOULD look very different compared to others because you’re you and they’re not.
This is why comparing yourself to others - financially or otherwise - is a dangerous game as I address in this 2021 article:
At the top of the article is this great quote which is especially relevant here:
“Personal finance is more personal than it is finance.” - Tim Maurer
One of the biggest challenges with financial planning is having virtually unlimited choice in the face of limited information.
You’re planning into the future, but no one knows what will happen tomorrow.
Or three years from now.
Or three decades from now.
And the best way to overcome this challenge?
Be more selfish and make your financial plan unapologetically yours.
Make it personal.
Make it something to be excited about.
Instead of including a generic “travel goal,” list specifically where it is you want to go and when.
If you’re setting up a trust, instead of naming it the “Jane Smith Family Trust” call it the “Jane Smith ‘Hope Y’all Enjoy Whatever’s Left Over’ Trust".
Many of you rightly assume financial planning is only about numbers, spreadsheets, software, and conversations that make watching paint dry sound exciting.
That’s how financial planning in all it’s various forms has been discussed and delivered over the past several decades.
But there’s a better way.
A much more personal way.
A more fun and interesting way.
Maybe you want to use words like “conservative” or “aggressive” in your financial planning.
Go for it.
Maybe the idea of 3 plans appeals to you.
Or maybe you don’t care how many plans or which words you use to describe your personal finances as long as your plan is literally YOUR PLAN and it’s “just right” for where you are today and where you want to go in the future.
If you’d like to discuss how to make your personal financial plan even more personal, that’s what I do best.
And of all the things I work on with my clients, it’s what I love most!
Whether you’re ready to start planning or want to review your existing plan, I’d love to hear what you think about all this.
Hit reply or leave a comment below.
Thanks for reading.
Until next Wednesday,
Russ