The only thing to know for sure about a financial plan is that it’s wrong – we just don’t know *how* wrong it is. Some thoughts on navigating future uncertainty.
Financial planning requires making assumptions about the future
In all the work I do with clients, we are thinking about the future impact of decisions made now. This naturally leads to making assumptions about what might happen in the future that we can’t possibly know.
There are broad, macro economic unknowable things like who will win an election; whether the Fed will raise rates again; whether social security benefits will be fully funded.
And there are personal circumstances that are unknowable for each client, but may have a big impact on the future. Will their 2 year old have a special need that requires time and money for therapy, tutoring, or educational support? Will their 10 year old go to University of Chicago, or University of Illinois at Chicago? Will their parent need long term care or other financial support? Will they stay at their job long enough to be vested in their company RSUs or employer-contributed retirement benefits, or will they find a new job opportunity in the next 12 months? Will they move to the suburbs or are they city folks forever?
The ground is shifting beneath our feet
Pema Chodron’s book, When Things Fall Apart, has a quote that hits me every time I hear it: “We’ve tried a thousand times to tie up all the loose ends, and yet the ground is still shifting beneath our feet.”
Isn’t this the truth? When we think we know something for certain, things change. Think back to December 31, 2019. Whatever you were imagining for your 2020, I bet you weren’t considering a global pandemic and its impact for the next 2+ years on all aspects of your life.
Financial planning is similar. Financial plans are built with incomplete information. The information is obviously incomplete, because it uses assumptions for the future that we can’t possibly know for sure. In fact, the only thing we can know for sure is that the plan will be wrong. We just don’t know *how* wrong it might be.
Here’s an example. One thing financial plans address is how much to save for your future – if you save this much, you’ll likely have a corresponding amount to use in retirement. The problem is that these calculations, no matter how complicated the algorithm or spreadsheet is, are based on assumptions that we know will be wrong.
A different framework for financial planning
Here’s a different framework to think about financial planning. Instead of having all the perfect, correct answers, financial planning can be a practice in helping navigate uncertainty. Instead of expecting that financial planning can give you all the answers you need, a different way of thinking about financial planning is as a tool to help you better handle the uncertainty which naturally comes with the future.
We live in a complex environment where one choice you make – or one random event – can have a huge impact on other choices that may be available to you in your future. And this can throw all those carefully planned assumptions out the window, resulting in the financial plan outcomes being wrong.
So, I’m working on embracing uncertainty and helping my clients navigate through the uncertainty that comes along with life. This is part of what I love about working with clients over many years – walking beside my clients when the expected happens, and helping navigate through it. Almost every time, even though the future is uncertain, there is a very clear first step to take for now. Doing the next right thing, for now, is sometimes the best we can do. And that’s a start.
Special thanks to Carl Richards for first introducing me to these ideas at XYPN Live 2022.