After over twenty years of being a financial planner, you certainly pick up a few things.? You realize every plan is different, and every individual is unique.? I’ve learned people’s tendencies, and what makes different people tick.? I’ve also had the pleasure of seeing countless people achieve their life goals, which is all extremely satisfying stuff.
However, for all the differences we have I find equally interesting the fact that the key tenants of what make our financial plans work are relatively similar and the list is fairly short.? This naturally bodes the question of what are the key drivers in making our financial plan work?? The good news is again there are only a handful of truly defining data points that matter.? The bad news?? There are only a handful of defining data points that matter.? Now, keep in mind we are a firm that truly believes in financial modeling as a core tenant to understanding one’s finances.
Ok, so what truly impacts your financial plan??
- How long you live– I often make a terrible joke with people saying, “If you plan to die a day after you retire your plan is easy.”? But there is some truth in those words.? If we are defining success retiring and not running out of money, well then naturally how long we need to rely on our life savings matters.? If you do indeed live 1 day or 1 year after you retire the plan is easy.? That said, more and more people are living longer with modern medicine and naturally this has a major impact on one’s finances.
- How much you spend– The next piece of data that is likely the most impactful to your plan is expenditures.? Three identical individuals, with identical assets, but with drastically different spending rates will have various degrees of success in retirement.? When people ask me how much money they need to retire, the answer always comes from understanding what they need to live on in retirement.? Goes without saying that an individual spending $100,000/year vs one spending $300,000/year have drastically different needs and requirements to be able to succeed.? The good news is this is one of the easiest things that you can control, bad news is it actually takes work.
- How much you save– Well, shocker alert here, your ability and willingness to save is hugely impactful on the probability of you reaching your goals.? Our clients who prioritize savings and investing simply get there sooner and better.? Not only that, but they also arrive at their destination with more optionality than those who don’t prioritize savings.? It truly is a marathon and a sprint all bundled up together.? Again, the good news is you can easily control this and simply make small changes.? Additionally, the sooner you start the more likely you are to achieve your goals.
- Everything else– I’m going to cover a lot of ground in this final “everything else” category.? Although, when you die, how much you spend and save are some of the largest contributors, there are certainly a handful of others that move the needle.? Such as how much you earn.? Naturally, the more you earn the more you can save, although doesn’t mean you always do save.? Next up, how your investments are structured.? If you are more risky vs risk-averse will directly impact your financial goals.? Also, this line of thinking is everyone’s favorite word these days inflation.? The higher the cost of goods increases the more or less you’ll need in present value terms.? Mix bag here of good and bad news.? The good news is some of this you can directly influence, however, the bad news is try as we might things like inflation are completely out of our control.?
Guess the key things I would glean from this blog are a few fold.? One is that there aren’t a million large things that impact our plan.? Two is that many of these factors you directly control, at various levels. Three you sadly can’t control all these factors, but you can control enough of them.? And finally, four, the more you plan and model the more you can see where you stand and what moves your needle the most.
Always here to help in any way we can and know we aim to have you live a wealthy, healthy, and happy life.
