Winston Churchill is credited with saying that “Plans are of little importance, but planning is essential”. This is particularly relevant to the financial planning profession in that all financial plans are nothing more than a big pile of guesses.
I would hope most everyone grasps the concept that there is no crystal ball that lets you see into the future. Nevertheless, too many practitioners and consumers hold the view that this is what financial planning attempts to do. Granted, in its most basic form, a financial plan identifies POINT A where you are now; and POINT B where you want to be in the future; and devises a game plan for getting you there. But after perfecting my craft for nearly 40 years I can tell you that practically no one knows where they want to be in the future with any specificity. At best, they have a solid guess. And surprisingly, even identifying where someone is in the present is subjective. Often couples cannot agree on where they are today and or how they got there. Third, there is the number of assumptions i.e. guesses that you have to make in developing a game plan to get from POINT A to POINT B which is staggering.
What Guesses? So what kind of items comprise this big "pile" of guesses? Well, to just scratch the surface, how about...
- Where will inflation be 5 or 10 years from now?"
- How long will I live?
- How healthy will our remaining days be?
- What will tax rates be in 10 years, 20 years, 30 years?
- Will interest rates stay low or will they rise? When? How much? How long?
- Will we each have our own car in 15 years, or will we all rely on Uber or Lyft or self-driving Teslas?
- What will our mobile phones be like in another 10 years, or will we even have mobile phones then?
- What will healthcare in this country be like in just 5 years let alone 20-30 years from now?
And one that comes up a lot and that affected me personally…
- Where will you be living in 5 years or 25 years? I’m a planner and I have a plan for myself, but if you would have told me 10 years ago that I’d be living in Clemson SC and commuting an hour one way to work, I would have said you’re nuts
So why bother? So if planning is just a big pile of guesses, why bother planning at all? I am not suggesting we just sit back and let our lives unfold. No. In fact, I believe just the opposite. I think General George Patton said something like A good plan violently executed now is better than a perfect plan executed later or not at all. In other words, a plan is a noun- a thing- an inanimate object, but planning is a verb- it’s something you do. Even though a financial plan is indeed a big pile of guesses, it's the process of thinking about and making those guesses that are important.
Removing Uncertainty Most financial plans are loaded with charts and spreadsheets which all convey the message that a sound plan can help remove uncertainty. I believe achieving certainty in anything let alone in a financial plan is impossible. Rather I suggest that it is much healthier and productive to commit to the process of setting goals (guesses); revisiting and revising those guesses frequently; and then making course corrections as things change.
The takeaway of this blog is Churchill’s quote “Plans are of little importance, but planning is essential”.