The financial plan and the album pt. 2

The financial plan and the album pt. 2

Photo by Lee Campbell on Unsplash

In my previous blog I described what a financial plan is:

“A financial plan is a collection of assumptions and facts based on what the planner knows about you and what you want to achieve in your life, which can then be implemented and reviewed over time”

And suggested that you could think of a financial plan as:

“An album from one of your favourite recording artists”

Initially you like the album because of the few songs you heard that made you decide to purchase or download the whole album. This is similar to having an initial meeting with a financial planner and agreeing to have a financial plan created for you.  You might have approached a financial planner because there was something, a ‘pain point’, that made you pick up the phone, or more likely the mouse, and book an appointment.

Over time you grow to love the whole album and in a similar way you appreciate the whole financial plan that has been created for you rather than just the solutions to the individual reasons that made you seek financial planning advice in the first place.

But what happens next?

You don’t just go away with your financial plan and admire it on the bookshelf, even if you do appreciate it more over time, in the same way as you don’t purchase an album and just look at it on your CD rack, vinyl shelf or download library.  You look out for new material by the same artist and when they release a new album, if you like the tracks you have heard, you are likely to purchase it.  If you’re like me, you may then revisit that artist’s back catalogue as they are on your mind again.

The new material may be slightly different to their earlier records as they add new ideas or members, but usually the core sound or style remains the same.

A financial plan should work in a similar way, it is not a static one-off report.  Circumstances change, you may have new goals or any number of things may occur as life throws things at us, good and bad.

A good financial planning firm will ensure that your plan is regularly reviewed and becomes a dynamic tool with which to make decisions over time.  Obviously in the same way an artist writes new music so that they can keep earning a living, it is in the interest of the financial planner to have an ongoing relationship with you.  However, in the same way that hearing new material can be uplifting and exciting and lead you to revisit older songs you haven’t played in a while; reviewing your financial plan enables you to reconsider previous goals and assumptions and make changes to these if needed.  This also gives you the opportunity to address any current challenges that life, tax rule changes or investment markets hit us with on a regular basis.

Your financial plan’s assumptions are highly likely to not be correct in the future, but they do provide you with a track to run on, and a way to try and anticipate problems down the road.  The plan becomes an evolving tool to help you in your financial journey.

It’s like an artist’s songs becoming the soundtrack to your life – you add to it each time they release something new but you also go back and appreciate the original material that got you hooked in the first place.

Eventually, as I said in the previous blog, you grow to love not only that first album (or financial plan) but also the later material with all the tweaks to the original sound (or plan).

A dynamic financial plan is the same: you will review it, add new assumptions and goals and implement new ideas but it is still at its core that first financial plan that got you started on your journey.

Cheers

Charles