A Planning Process Trumps a Financial Plan
Let’s talk for a moment about the difference between a financial plan and the process of financial planning. The construction of your detailed personal financial plan provides the framework to help you to start achieving your goals. It is the result of a series of answers to questions you have been asked and it makes varying long-term assumptions about: investment rate of return, interest rates, rate of inflation, cost of living and a variety of other projections often extending out 10-30 years, and more. A financial plan can give you a clear picture of your present situation, a strategy about where you are going and peace of mind about your future.
Whilst being in possession of an impressive document like this may make us feel good – perhaps even safe – it is not to be put away on a shelf as life goes on. Just possessing a plan like this is not enough. A plan like this needs to be implemented, ensuring your action items are put in place, but what’s even more important is the process of ongoing financial planning.
A plan assumes that we know what may happen in the future – the rate of return you will achieve, taxation and legislation changes, the rise or fall of interest rates and the rates of inflation – even though we don’t. By contrast, real planning is a reality-based process. We all know that “things happen”, real planning allows for life’s unpredictability and responds accordingly.
So, while it is true that those who fail to plan actually plan to fail, the solution is not to prepare an exhaustive one-time plan. It is the ongoing process of planning that often makes the difference between success and failure.