Happy New Year!
Today is my birthday – a milestone one at that. I find that milestone birthdays – and a New Year – are usually times of great reflection: we look back on what we’ve accomplished (or regret what we didn’t) and resolve to do “better or differently” in the coming year(s)…especially before that next “milestone birthday” comes around!
In my world, I meet a lot of people who say they need to get their financial planning started, but somehow, it never seems to happen. Or, they have actually had a full financial plan done, but never make time to implement it. But there are times when even fully prepared & mostly implemented financial plans just don’t work. Why? Some common themes that cause a financial plan – or a well-intended New Year’s resolution – not to work:
1. Unclear Values/Priorities
A financial plan that addresses the wrong goals and needs deserves not to be implemented. Individuals/couples need to take time to really define what they want - and in what priority - so that a clearly-defined financial plan will actually work for them, and they will be committed to following it. Asking such introspective questions as, “Are we allocating our resources (time and money) in line with our priorities?” will help to uncover important values to be addressed.
2. Unrealistic Expectations
A sound financial plan is only as good as its inputs. 2017 has been a stellar year for the stock market – far above average. But using rates of return like 2017’s in a retirement forecast is a recipe for disaster. It’s not sustainable. So, too, is a retirement expense budget that’s far less than what an individual/couple really spends. If an individual/couple doesn’t “synch” their true spending with the budget used in their forecast, they could run out of money in retirement.
3. Emotional Decision Making
Irrational exuberance when markets are trending up, or panic when markets are trending down often cause individuals to abandon their investment plan (often the backbone of a good financial plan). Furthermore, confusing “needs” with “wants” (e.g. vacation homes, toys, lifestyle maintenance) can wreak havoc on a financial plan when circumstances unexpectedly change – especially when the cost of those “wants” are underestimated.
If a financial plan is designed to only work with one set of assumptions, it could be doomed for failure. Events happen that are often out of an individual’s control, and there need to be contingencies built into the plan accordingly, such as working longer, cutting spending, or lowering goal expectations. And all good financial plans need to have an appropriate emergency fund built into them to address unforeseen circumstances.
Mentioned earlier, but it bears repeating: a perfect financial plan is worthless without proper follow-through – just like every important New Year’s resolution. Failure to take action can lead to a host of other problems (lack of insurance when a large loss happens, loved ones without proper resources or care, paying too much in taxes, etc.) The way to prevent “implementation risk” is to hire a coach (financial planner) who will keep you on track, and start small: implement one piece of your financial plan at a time (just like eating an elephant!). Eventually, it will all come together.
So, if you’re nearing a milestone in your life and don’t have a well-developed & implemented financial plan, perhaps it’s time to make a resolution to get one in 2018? Be mindful of the “silent killers” of financial plan success noted above, and have a great New Year!
Karin Grablin, Certified Financial Planner®, CPA, MBA, is with SRQ Wealth, 1819 Main Street, Suite 905 in Sarasota (941-556-9004; [email protected]). Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through SRQ Wealth Advisory, a registered investment advisor. SRQ Wealth and SRQ Wealth Advisory are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal. No strategy assures success or protects against loss.