Since the Covid-19 pandemic started the world might seem more uncertain than before. The reality is the world has always been uncertain (to a greater or lesser extent depending on your situation), we are just very aware of it at the moment.
My recent experience is that having a financial plan to evaluate the impact of this uncertainty can be very helpful. The plan is not in any way a prediction of what will happen, as when building a financial plan with my clients there are many assumptions which underpin it (investment returns, inflation, longevity, income, expenditure – the list goes on). The chances of all these assumptions being accurate year on year in real life is practically zero and so to suggest the plan is what will happen is not reasonable (life is anything but a straight line in my experience).
You might be thinking what is the point of the plan then?
Well, the power in Financial Planning is in the process of planning and not the plan itself. Given the sheer number of assumptions we are making these are really guesses about the future. Yes, they are educated guesses, but guesses nonetheless. What is important, though, is the guesses are the best we can make with the information we have at the time. As we move forward in time we receive new information and incorporate this into the plan – this is where the value lies, keeping on course for whatever destination we have set (retiring at 60, etc) – imagine a sat nav that plotted a course and never suggested alternative routes despite accidents/road closures etc. That would be no different than using a pre-printed map.
Rather than be defenders of outdated maps financial planners act as guides in an uncertain world. In my experience many people like/want certainty but real financial planning is about embracing uncertainty and understanding that this is reality.
The planning process helps us to think about what we want to achieve, where do we want to go, what do we want to be? The human mind is a great tool for solving problem when it is aware there is a problem to solve (and for me, the best way is to forget about the issue and then the answer comes at some point – often when walking or driving, inspiration then arrives from nowhere). When our minds are “tuned in” to something our awareness increases. A good example is when you are looking at a new model of car and suddenly see this everywhere, these cars were always there but unless we think about them, we do not see them. Therefore, thinking about what we want from our lives increases the chances of having fresh ideas about this.
We are therefore committed to a process of continually guessing and not the guesses themselves. This is why a financial plan is not a one-time event and the plan is never “finished”.
A good metaphor is driving at night in the fog. You might not be able to see very far ahead but with an engine (investments & pensions), a map (the financial plan) and a driver (either you or your planner – you then relax as the passenger!) you can make it to your destination.
Warm Regards
Neil
