Financial planning isn’t a science, and it isn’t an art. It is somewhere in between. But you want a personal financial plan for the same reasons you want to diet, exercise, drive the speed limit, and avoid dark alleys in unfamiliar cities: it’s a numbers game.
No one can predict the future. That’s true. And financial planning relies on modeling the future. So it’s easy to say that all financial planning is, therefore, just a speculation about your future. But that’s like saying that it’s pointless to exercise because you know of someone who ran eight miles a day, five days a week, and died of a heart attack.
There are no guarantees in life. Even people who watch their diets and exercise get heart attacks. But planning attempts to give you some assurance that you will be able to pay for your goals in life – traveling, taking care of your parents or paying for a child’s education. It’s a way of anticipating the future and preparing for it, so that you are less likely to be badly surprised.
Your personal financial plan is not a road map that you draw up one time and then forget. Your plan needs to be re-tuned annually to be sure you are still on course to achieving your goals. While there are no guarantees that you’ll get where you want to go, you can greatly reduce the chance of winding up in a dark alley alone in a scary place.
Until next time...