Here’s a Secret: Your Financial Plan Is Wrong
They say close only counts in horseshoes and hand grenades.
Close also counts in financial planning if you are diligent enough to continue to plan.
Today’s financial tools offer terrific detail regarding your financial future. Simply input your current state, make some assumptions about future expenses, savings, and spending and out spits your financial future to the very last penny, projected through your death.
Will it be correct? Of course not! The financial projection only provides a broad estimation of the future. In fact, many planners also now run so-called Monte Carlo simulations that estimate a percentage success rate for your plan.
Can this be relied upon? Of course not! Things change. Life happens. You may get married. You may have children. You may move out of state, or out of the country. You may get a huge bonus or you may get laid off. Any of these events and many more of life’s curveballs can completely undermine any fancy financial simulations.
So, how can you plan for the future? The best answer is to accept that a financial plan is only a snapshot view of your current and projected financial life, and it will most assuredly will be incorrect.
The solution is to update your financial plan on a regular basis. Perhaps annually, semi-annually or maybe only when those curveballs start coming your way.