Financial Planning: The Importance of "If"

The simple truth about life is that it is unpredictable. As humans, we try to plan and predict what the future may hold despite our inability to know for sure what lies ahead. With an unknowable future, having a financial plan is always a good idea. Plans keep us focused and on track in a world full of distractions and temptations. With that said, there is a difference between having a plan and having a good plan. That difference can be summed up in one word: if.
While I used the word unpredictable above, perhaps the better word to use when it comes to managing your money is “untimeable.” You and I could sit down and come up with about 99% of the disastrous financial events that could occur in the future. From a market crash like we had in 2008 to the loss of your job, determining what can happen in your financial future is not that difficult. The problem lies in our inability to know when these disastrous events may occur. Based on that inability, we turn to the word “if” in order to both plan for the future and preserve the money you already have.
While only two letters, “if” is a very powerful word because it makes us think about different scenarios and how they may impact our financial lives. Good dialogue with a financial advisor builds off those different scenarios and acknowledges an economy based on chance. With the proper understanding of the “untimeability” of life, you can avoid taking unnecessary financial risks and in turn avoid experiencing unnecessary losses.
To illustrate the importance of that understanding, we will use a client of mine as an example. Currently, she receives a company pension paying her $80,000 and has absolutely no risk of lost income unless her company goes bankrupt. Unfortunately, there is no formula or algorithm to determine a company’s probability of bankruptcy. It’s an all or nothing deal. In light of that, the best we can do is to simply create a lean and flexible plan that accounts for the possibility of bankruptcy; no matter how likely it is to occur.
Financial planning based on “what if” scenarios are, unfortunately, a rare occurrence in today’s financial world. Despite its rarity, it is a crucial undertaking when it comes to preserving your hard earned money as well as planning for your needs in the future. The reality of life is that while we can develop a good idea of what unfortunate events can occur in life, we can never say for sure when they will occur. Embracing life’s unpredictability in your financial plan is, in my opinion, the only way to adequately protect and grow your money and preserve peace of mind. As humans, we must realize our inability to know the future and realize that in that inability lays the importance of the word using “if” when planning for your financial future.