Plan. Planning. Planner.

TCI Missy

Dec 5, 2013

By Sam Swift, CFA

There’s nothing I mention more than the importance of having a financial plan, but I should clarify what I mean.

A plan is a great start, of course—analyze where you are currently, describe where you want to get to (your goals), and then create a path that will take you there. The only problem with this is that a plan is based off a static set of variables from a fixed point in time. Your current situation and future goals are bound to change.

I watch a lot of football—most likely, too much—and I think it provides a good analogy here. Every coach heads into a game knowing their current situation (players, opponent, standings etc.) and their long-term goal (presumably to win, though my favorite team has had coaches who made me question whether this was truly the goal). Inevitably, that game plan goes out the window within the first few minutes. Maybe a star player gets hurt or the other team is running plays the coach never anticipated, but by halftime all the announcers can talk about is which coach will make the necessary adjustments.

This is the difference between having a plan and actively engaging in the planning process. In football the best coaches don’t wait until halftime to adjust their plan, but do so with each change in the game situation in order to give themselves the best odds of winning. When it comes to your financial future, the most successful people constantly make adjustments (save more/less, work longer/shorter, etc.) to give themselves the best chance of meeting their goals.

The football analogy is missing one very important piece, however: an objective planner. The head coach will always be subject to emotional decisions and may not be able to see the whole picture clearly in the heat of the moment. This can lead to adjustments that lose sight of the big picture goal—benching a star player because of one mistake, for example, or making decisions with the coach’s concern about their own job security trumping the long term goals of the organization.

The same is true of financial planning. Someone with the best intentions can absolutely get caught up in the moment and lose sight of their long-term goals. We see this through all types of behavioral issues: trying to make up for losses by taking on more risk, selling after a big downturn, chasing returns, etc. Fortunately, there’s a solution. An objective planner won’t lose sight of the big picture and won’t let outside circumstances dictate the planning process.

A plan is a good start. Making constant adjustments through the planning process is better. Having an objective planner to guide you through that process is best of all. Plan. Planning. Planner.

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