June 13

Planning for Financial Change


Planning for Financial Change

Featured in the Bradenton Herald 6-11-19

Financial decisions can be highly stressful and consequently are often a source for procrastination.   Psychologist Barry Schwartz says 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. A good financial plan can provide context and criteria for making complicated decisions.

As a Certified Financial Planner (CFP®) I feel many corporations in my industry have turned a great tool into a weak product. I often am presented with glossy and embossed documents full of pages of data and graphs that are meant to represent a financial plan.  The understanding and usefulness of these plans tends to be minimal at best.  I am reminded of Dwight D. Eisenhower's quote, "Plans are Worthless butPlanning is Everything". Ike elegantly summarizes the  paradox of planning:  That events rarely unfold as we expect but planning allows us to better adapt to change. Good planning is not a product but rather an ongoing process.  In my opinion, the thicker the plan the less its value.  I am also reminded of Mark Twain's quote - "If I had more time, I would have written a shorter letter."  In the following article I intend to go over some of the potential limitations of a financial plan and why more adaptive planning is important in today’s increasingly complex environment.

Adaptive financial planning incorporates flexibility and generally allows for changes to be made when desired and/or necessary to adapt to personal or external needs.  A financial plan is undeniably an important tool and I have spoken extensively to its merits in many former articles. It allows us to establish where we currently stand, and plots a course to help us pursue our goals. Most importantly, it often reveals blind spots we might not have seen such as opportunities or threats that may only become visible when we assimilate all of the moving parts.  Once a plan is put into action, many of the underlying assumptions are sure to change. Change happens so fast today that many assumptions used in creating plans will be wrong within a fairly short period much less a full retirement.There’s an old Yiddish saying that goes – We plan, God laughs.

In order to adapt to change we need to add a process for measuring how and when a plan needs to be reviewed and revised.  Adaptive financial planning isa process to help identify and provide direction to life’s unpredictability.The adaptive financial planning approach restores order through regular checkpoints to determine if course corrections are needed due to personal issues or external events like tax changes or market volatility.   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? A loved one has just passed away, congress is passing some legislation that might impact me – what are 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.

The benefits of adaptive financial planning

  • It can 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.
  • It can properly apply tax strategies in relation to income and estate planning concepts. Without an adaptive plan it is easy to be overwhelmed by the intricacies of tax or estate planning or the complexities surrounding financial products. Both add up to lost dollars and future earnings power.
  • It can coordinate all of the important details and shed light on the unknown. Decisions in one area can dramatically affect results in another. By conducting an impact analysis (What ifs) of your potential decisions you can see how each component effects your overall potential results.
  • It can help you to manage and prioritize goals as well as to identify potential opportunities and threats.  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 will hit our targets if we don’t aim before we shoot.
  • It 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, should keep you headed in the right direction and out of behavioral mistakes. As Winston Churchill said - "the best generals are those who arrive at the results of planing without being tied to the plan."



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About the author

Gardner is a CERTIFIED FINANCIAL PLANNER and principal of Sherrill Wealth Management in Bradenton, Florida. He has spent 20+ years in the wealth management field helping families negotiate the various obstacles and opportunities that retirement provides them.
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