Do You Have a Financial Plan or Financial Gridlock?
October 21, 2013It is déjà vu all over again with the debt ceiling debate having reared its ugly head once again. In my opinion, when it comes to the financial stability of our nation, it doesn’t matter if you lean to the left, lean to the right or are somewhere in between with your political views (or if you are completely indifferent to political dialogue). The reality is that something needs to get done to end the gridlock in Washington that impacts every American.
But as much as political gridlock frustrates me, as a financial planner I am really frustrated with the gridlock that occurs when inertia rules the day during the personal financial planning process. I am not referring to couples disagreeing on how to spend, save, give or invest. Personal financial gridlock occurs when people create overly complex financial plans and there are too many moving parts to make any sense of which step to take next. Financial gridlock happens every day in households across America in which people take the time to create a game plan but do very little to put those plans in motion.
The phrase “too big to fail” was popularized during the financial bailout of the Great Recession. Personal financial plans can also be “too big to fail” if they don’t accomplish their intended purpose. Unfortunately, many people seeking monumental changes in their financial lives create unrealistic action plans that have too many steps to take. Things get more complicated when you’re just not sure where to start. Think about it. Would you rather have a to-do list that is twenty items long or a list of 3-5 actionable items that you can start working on immediately with confidence?
“It’s not a financial plan if it doesn’t have at least 150 pages of charts, graphs, recommendations, and supporting information.” Those were the words of wisdom handed down to me from a veteran financial planner at a company that I worked at earlier in my career. Those financial plans that I created were full of insightful tips and guidance all backed with colorful charts, graphs, images and supporting information. It was well organized across the major topic areas of budgeting/net worth, investing, retirement, college savings, insurance and estate planning. The summary included an action plan that frequently listed around 15-20 steps for clients to take. The “wow” factor was there but what these plans severely lacked was simplicity. At the end of the day, all that really matters is reaching important financial life goals.
Financial planning is the process of aligning our money and wealth with important life goals, values and vision for the future. It’s about simplifying our financial lives, not complicating them. The true role of a financial planner is to empower positive decision making and to encourage others to enact behavioral change. So why overwhelm ourselves with unrealistic action plans?
It has been estimated that approximately 80% of financial planning recommendations never make it to the implementation stage. That is a horrible track record! If your financial plan is too complex or that list of things to do seems too long, perhaps now is the time to transition to a more simplistic approach.
Perhaps that list of things to do will appear much more attainable if you commit to focusing on the top three action items. Set a specific time frame for completion and hold yourself accountable. Whether it’s running a retirement calculator, increasing your 401(k) savings, having your will created, or setting up that 529 savings plan for the kids, you will benefit by putting those action steps in writing.
If you need some guidance, you can always consult a financial planner. Just be cautious if they rely heavily on long and complex financial planning documents full of information that changes the second you walk out of their office! A simple 3 step action plan may just be the key to eliminating personal financial gridlock. As far as political gridlock is concerned, any action plan will likely do better than the current state of partisan bickering.