Plan Versus Planning

I don’t think Financial Plans (the upper case F and P are on purpose) provide much value, and I’ve seen my fair share of them.

• I’ve seen the ones put together almost entirely by software.
• I’ve seen the ones built in Excel.
• I’ve seen the ones done by hand with a BA II Plus calculator.
• I’ve even seen the ones put together with AI, loaded with em dashes in every sentence.
• I’ve even seen the one-pagers that literally say, “everything will be fine, you have enough money.”

I think anything in a Financial Plan that looks more than two years into the future, except the part that confirms you won’t run out of money before you die, is meaningless.

Let me explain.

The most important part of a financial plan (lower case this time, on purpose) is confirming, first and foremost, that you won’t run out of money before you die.

How do we do that?

First, we figure out all your known future sources of income. The obvious ones are the Canada Pension Plan and Old Age Security. After that, we factor in any public or private pension that pays a set amount for life.

Then we look at known sources of income you have today, think rental income or annuity income.

After that, we project what your investments might be worth on the day you want to retire, and how much income you can realistically draw from that nest egg.

How much should you expect? There are plenty of schools of thought: live off interest and dividends, follow the 4% Rule, Guyton’s Guardrails, and so on. For the record, I’m strongly in the Guardrails camp. That’s a post for another day, though.

Once we’ve looked at income, we need to consider known future expenses like tuition, a renovation, a new car, or a new boat (please don’t get a new boat).

That’s all we can do when we put together an initial financial plan. It essentially says, “With what we know today, you should be OK.”*

What can’t we plan for? Anything unexpected, illness, divorce, death (well, the unplanned kind), a scholarship, a bursary, job loss, job gain, looking after a parent, the list goes on.

And that’s why I don’t like capital F, capital P Financial Plans.

They’re rigid and they’re documents loaded with guesses stacked on top of other guesses.

I hate quoting a dead president, but Eisenhower said it best: “Plans are nothing, planning is everything.”

Your financial plan is a process, and it should be treated like one. That’s why we’re in regular, proactive contact with our clients, to make sure things are set up right and to make adjustments as life changes. We can only work with what we know today, not what we hope we might know in five years.

Just imagine thinking, “I’m going to buy a new car in May of 2032 for $60,000, and my existing car will have a trade-in value of $10,000.” And then putting that in your financial plan. It just doesn’t happen that way.

Planning for certainty in an uncertain world isn’t prudent. Knowing you’ll have to adapt is.

*I use “should” because all we have to guide us is history. And I’m sure my compliance officer will love this part: past performance is no guarantee of future returns.