We’ve all heard it before, in a variety of contexts: Hope is not a plan. However, it is interesting to see in practice how often clients actually believe it is a plan or at least the cornerstone thereof. The impact of such a belief may be huge, primarily because it keeps one from getting down to business and formulating a real financial plan that has a chance of becoming reality.
Are you sure that your plan is not dependent on hope? The role of hope can take on many forms in a client’s financial plan and is sometimes hidden beneath layers of very rational and seemingly concrete facts and assumptions. However, upon a closer look, the uncertainty of these facts and assumptions becomes apparent and the weakness in the plan a real problem which needs to be addressed.
Still not convinced? How about the client from sunny California whose plan, successful on the surface, depended on her home maintaining an annual rate of increase of ten percent in after-tax value each year for the next forty years? Or perhaps the client who expected that his million dollars in investments at his retirement date would provide him an after tax income of $100,000 for the next thirty years no matter how the markets performed? The client whose plan depends on an inheritance from a parent with an uncertain life expectancy and a well-known habit of high spending without regard for the future?
Now you begin to see it. What may appear to be known and certain on closer examination becomes blurred and vague. That future cash flow into the plan we have made is dependent on a host of factors that are not only unknown but outside our control or ability to materially change them. The expected money could double or disappear or do something entirely different. It could arrive tomorrow or in ten years or never.
Some of us react by ignoring that flow entirely and making our own independent plans – if the flow materializes that is a big extra fun surprise. Others of us may try to narrow down what seems most likely and supportable under the facts – an element of hope but tempered with skepticism. And then there are those who simply turn away and seek validation from a different source – you are better off not working with them.