Is a financial plan really a plan or merely an overview of known factors and assumptions with little predictive value as to future developments? A well-used trope in financial planning is that the only thing certain about a financial plan is that it is wrong. By wrong, we mean that the numbers the plan shows are not what the client will actually experience because the plan, at most, is only a momentary snapshot based on many assumptions. That makes sense, of course, since the best one can do is assess possibilities and try to get the numbers and predictions into the region of the probable as opposed to the possible.
Of course, some of these problems or criticisms are alleviated where the plan is regularly revisited and updated in light of changing client circumstances, laws, and markets, among other things. In that situation a plan becomes more than a one-time view that is immediately obsolete and, as updated, may help keep a client on track to meet the changing goals. In this fashion the plan has more relevance and utility since it adjusts as and when we need it to adjust.
Another factor to consider with a true financial plan is how it helps us to get an idea of what might need to change in the plan if various events occur during the planning period (most often one’s lifetime). These are events such as disability, premature death, early retirement, unexpected inheritance, deferred retirement: you get the idea. In each case we choose to examine, a planning assessment allows us to determine what changes we might make in spending, allocation, those nice-to-have goals and more in response to the event. In this manner, a plan helps us to think about some of the “what ifs” in our lives and how they could be handled and keeps us from overlooking some of the possibilities. That depth of preparation holds a great deal of value in the event something out of the ordinary happens and knocks us off the main path we were considering.
So maybe that financial plan – though we know it will and must change over time – can help us to prepare for the future and do better with our financial lives. By the same token, the plan will help our financial adviser(s) to better serve us in how our plan will go forward in a variety of situations.