As with most things in life, there are differences of opinion as to how to create a financial plan in the most effective and efficient manner. Some financial planners belong to the school of thought that says the more detailed it is, the more effective it will be.
Their modus operandi is to put together a very detailed plan with incredibly specific projections based on your financial goals, expectations and scenarios. Assumptions will include investment growth rates, inflation, tax rates, spending, and usage or distribution of assets to name just a few. Using a wide range of assumptions they will produce a report that is detailed down to the last shekel, with projections of whether you will be successful in achieving your goals. These financial plans usually cost thousands of shekels (or even dollars) to prepare and can provide a great deal of information for the person looking for lots of details. However, not everyone can absorb that much information or enjoys the logical hyper-analytical presentation of a long-term financial plan over tens of pages or more.
We, on the other hand, have a different approach to financial planning. Whereas when creating a financial plan for a company we will analyze and include all the metrics necessary to meet a company’s needs, we believe that most individuals do not need the same level of complexity and detail when constructing a financial plan. Plans often need to be more focused so that one doesn’t lose sight of the forest through the trees. Individuals don’t usually have the same complexity as a company, and therefore most often don’t need the very in-depth plans and scenario analysis that can be found in a hundred-page financial plan.
Our role as financial planners is to give purpose to the basic information to enable our clients to be successful. People often feel that the more they plan the more in control they are. We all need to recognize the absolute truth that we aren’t in control, and that feeling is an illusion. I am writing this article after more than a year of corona, with the horrific tragedy in Meron a couple of months ago, followed by a war down south, a barrage of rockets from Gaza and a civil insurrection in mixed cities around the country. While these events for some are already a distant memory, it should be clear to all that the only thing we are totally in control of, is our reactions to any given situation. Whereas we absolutely have to ‘do our bit’ and plan, we must simultaneously realize that the purpose of that plan is to position ourselves to make the best basic decisions for success, leaving ourselves open to adapt as necessary. And that is what we focus on when working with our clients – helping them to make the best decisions with the information at hand, even if it’s not complete, even though we can’t foresee the future.
In order to create your financial plan you need to choose wisely how to spend and save in order to ensure your financial success. However, you can over-plan and worry about every possible outcome and this can lead to delaying critical decisions because the easiest path is that of least resistance, or the “do nothing” approach. People need to make decisions that will give them the highest chance of being successful, while still not receiving a guarantee of success. It isn’t necessary to plan to the last decimal point; what you need to do is to understand the concept and then make the correct decision to set yourself up for long term success.
Start here
The following very general and very brief outline is just to give you the direction and concept about how to start looking at your finances and the critical decisions you need to make. Every financial plan contains many elements and has short and long-term goals.
Your short-term financial plan can be quite structured, with monthly goal setting and tracking to achieve more immediate results.
Long term financial plans are much more complicated. There is no way that you can know every possibility and machination, but that isn’t necessary for your plan. You need to understand the concept behind each major element that will enable you to make critical decisions. For example, how you will save and invest your savings to cover large, anticipated purchases and life events.
Rather than being empowering, over-analyzing can create inertia as it creates uncertainty. Avoid getting lost in the details. Wherever possible keep your financial plan simple, so that you can work with it easily and update it regularly as required. Behatzlacha!