When Your Financial Plan Doesn’t Go According to Plan

In the U.S., roughly between 30% and 50% of the population have a written and documented financial plan. Whether you have established a written plan or not, there is a financial plan in place for everyone because even if you don’t have a written one, some would argue that circumstances are dictating how your financial life plays out. That is an unintentional plan, which is not the most effective way to manage your money. For those who have a written plan, they can be mistaken in believing that the plan accurately outlines what is going to happen to the letter. No matter how meticulously your plan has been created, one thing we know with nearly 100% certainty is that by the time the ink is dry on the plan, something probably has already changed. Our lives are not static or programmed out. Financial plans take the current status of your financial life and what you seek to achieve and build a bridge to get you from here to there. However, in that development, a lot of assumptions must be made. No matter how good your assumptions may be, as time progresses, circumstances change, which alters what is required to bring the results you want to life. Whether it is because of unfavorable situations or just because life happened, it is important to understand that your financial plan is a living and evolving document. So, in this issue of the newsletter, we will discuss ways you can still move forward productively towards your dreams even when your plan has changed.

The Value of the Plan…Even if It is Not Completely Accurate
Something I stress to clients is that their financial plan has value, no matter how much or how little they’ve adhered to what it calls for. You might think if the plan lacks some accuracy, it is not of use, but that is the wrong way of looking at it. What the plan does is provide you with an organized way to view what you have and what you can do to achieve the things you desire. Make no mistake, the specifics of the plan are important, and you want to put as much accuracy into building it as you can, but no amount of accuracy can overcome changing circumstances that we don’t have control over. Think of it this way. If you were planning a road trip across the country, would you be better off just starting to drive or having the trip mapped out by your GPS? Clearly, you would be better served by using your GPS to plan the trip. Having your trip in the GPS does not negate that you are likely to run into traffic jams that will take you on a different path, but at least it gives you marching orders on how to move. Then, when situations happen that you did not account for, you can adjust rather than having to start over from scratch. Your financial plan works in much the same way, and this is one reason why creating a plan is not a “one and done” exercise. As you take in new information, you will change the previous assumptions you made and adjust the plan accordingly. And as you get closer and closer to your desired destination, you can begin to close in on what you need to do to bring the dream to reality.

Digesting the Change and Incorporating it Into Your Plan
If we agree that having the plan created is valuable, we need to have a way of accounting for changes that occur and adjusting the plan to build in that new information. This may be best illustrated using an example. Let’s say that you plan to retire at age 65, and your financial plan is built around retiring at that time and using the retirement benefits you are entitled to along with withdrawing from your life savings. Now, let’s throw in the wrinkle that at age 61, your employer decided that your position was no longer required. If everything was built around you retiring in another 4 years, that piece of news could change the equation. Because you intended to work another 4 years, you could look for new employment that will allow you to earn income and save between now and your target retirement age. But there is no certainty that you will find employment comparable to what you had before, and it is possible you may not find employment quickly or at all, especially being more mature in your career, and presumably earning higher income than someone less seasoned than you. Such a plan altering event means that you may need to make a number of changes to your approach, but having the framework of the plan already in place gives you a better starting point to make the necessary changes. You may decide that for the length of time you are not earning income that you will lower your household spending to lessen the current impact. However, if you are not able to continue saving at the level you had planned on, whether temporarily or permanently, the sustainable amount you will be able to withdraw may have to change. There are plenty of variables to consider, but by having the plan already in place, it enables you to make smaller adjustments rather than radical changes.

Controlling What You Can Control
Often the things that alter your financial plan are outside circumstances, things that you don’t have reasonable control over. Even so, you usually have other things that you can control, and when a change comes, it is helpful to focus on the things that you do have control over. An important principle I believe in is that rather than obsessing about the results you want to accomplish, instead you would do better to focus on the process and the actions you can take, since you have far more control over that than the end results. Going back to our previous retirement example, your job being eliminated was not within your control, but your focus on seeking employment to resume generating earned income is within your control, as would be the amount you sought to save. Depending on how some of those things played out, you may end up deciding that for you to accomplish what you want, it may be to your benefit to work past the originally planned age 65, or you may choose to reduce the withdrawals from your savings to make their longevity more sustainable. Again, planning is not a one-shot deal, and it is critically important that you assess where you stand along the way so that you can take in new information and decide what you can control to help you achieve the results you desire.