This past weekend I had a few experiences that didn’t quite go as planned.
First, I went on a short work trip on Friday. It was one of those fly-in and fly-out on the same day type of trips. I woke up early that morning to head to the airport and didn’t land back in Utah until after 11:00 PM that night.
As I was walking to my car, gearing up for the almost hour-long drive home that would put me in my bed well after midnight, my keys weren’t working to unlock my car. I thought that was strange, but then it suddenly dawned on me.
My car was dead. In my rush to get on the plane that morning, I had forgotten to turn off my car lights. Since it was so late at night, there was no one else in sight in the massive airport parking lot.
Luckily for me, my friend (shoutout Taylor) who had accompanied me on the trip was only 30 minutes into his journey back to his house, and when hearing of my plight, was kind enough to turn around and help jumpstart my car to get me home.
Although it was a couple of hours later than I had anticipated, I did eventually make it home and was able to get some rest.
The following morning, as is tradition on Masters weekend, I went golfing with my dad and brother.
As we were putting around the practice area waiting to be called to the first tee to start our round, we realized that our names weren’t on the lists of people being called to head out.
So we walked into the pro shop and found out that they had double-booked our reservation. There was no room for us on the course for the rest of the day.
Wanting to keep our tradition alive, and much to the chagrin of my wife who was home tending to our children as I was out having fun, we told them we were willing to wait around until someone canceled and space became available. After a couple of hours of waiting around, we were finally able to golf and I proceeded to have one of my worst rounds of the year.
After golf, we took a walk as a family to enjoy the warm spring weather. We were having a lovely afternoon when all of a sudden one of my boys tripped over his shoes and fell face-first onto the cement sidewalk.
He smashed both of his front teeth right into the cement causing them to be chipped and pushed up into his gums.
The jury is still out on whether he’ll be able to keep the teeth or not. Being early in my parenting career, this has been my first significant accident with one of my kids and it’s been tough.
Now, I know these mishaps are extremely trivial compared to some of the more weighty, life-altering setbacks that can happen in our lives from time to time.
I probably wouldn’t have even paid them much attention, but because they happened one right after another, I couldn’t help but think about how so often in our lives things don’t go according to plan.
And given that unexpected things happen all the time, I think it makes sense to give yourself a margin of safety with your personal finances. You should build a financial plan that can survive a wide range of outcomes.
I love this excerpt from Morgan Housel:
“What’s the saying? You plan, God laughs. Financial and investment planning are critical, because they let you know whether your current actions are within the realm of reasonable. But few plans of any kind survive their first encounter with the real world.
If you’re projecting your income, savings rate, and market returns over the next 20 years, think about all the big stuff that’s happened in the last 20 years that no one could have foreseen: September 11th, a housing boom and bust that caused nearly 10 million Americans to lose their homes, a financial crisis that caused almost nine million to lose their jobs, a record-breaking stock-market rally that ensued, and a coronavirus that shakes the world as I write this.
A good plan doesn’t pretend this weren’t true; it embraces it and emphasizes room for error. The more you need specific elements of a plan to be true, the more fragile your financial life becomes. If there’s enough room for error in your savings rate that you can say, “It’d be great if the market returns 8% a year over the next 30 years, but if it only does 4% a year I’ll still be OK,” the more valuable your plan becomes.
Room for error – often called margin of safety – is one of the most underappreciated forces in finance. It comes in many forms: A frugal budget, flexible thinking, and a loose timeline – anything that lets you live happily with a range of outcomes.”
The most important part of any plan is to plan on the plan not going according to plan.
Planning for the future involves a lot of guesswork. You have to guess about rates of return, income, inflation, taxes, date of death, goals, and on and on. It’s impossible to get all of that right. And that doesn’t even include the guesses we’re making about our own values, beliefs, desires, and preferences.
Not only does the standard of living change, but people change. However, humans have a tendency to underestimate how much they’ll change. Psychologists call this phenomenon the “end of history illusion,” where we somehow imagine that the person we are right now is the person we’ll be for the rest of time.
The only thing we know for sure about any financial plan is that once it’s completed, it’s likely going to be wrong. We just don’t know exactly why yet.
Good financial planning needs goals. Good financial planning also recognizes that goals will change. In that sense, it’s helpful to think of financial goals as guesses. No one can predict what will happen in the future, so focus on what you can control and keep adjusting your goals as new information comes along. Financial planning is a continual process, not a one-time event.
Thanks for reading!
This article was originally featured on “Money Talks” Substack.
Jake Elm, CFP® is a financial advisor at Dentist Advisors. Jake a graduate of Utah Valley University’s nationally ranked Personal Financial Planning program. As a financial advisor at Dentist Advisors, he provides dentists with fiduciary guidance related to investments, debt, savings, taxes, and insurance. Learn more about Jake.