He who fails to plan is planning to fail.
Sir Winston Churchill is credited with this famous quote during World War II. And though various renditions exist from different individuals throughout history, the principle remains true today.
I see the power of these words all the time through my work as a Financial Advisor. The difference in results between those families I serve with a financial plan and those without are impressive. Financial plans offer direction, clarity and act as a motivational tool that we often need when it comes to the dull topic of finance.
Any plan follows the same basic foundations. They contain a snapshot of where you are now or your current circumstances. Then they outline where you’d like to go and what you’d like to accomplish. Finally, the meat of the plan is filling in the path with the things you need to do to realize your end goals.
These foundations are very similar to those that Churchill used in planning to battle; where are we, where would we like to be, how do we get there.
A good financial plan is the same. It’s a document that defines where you are financially today, clearly articulates what is important to you along with any financial milestones or goals that you have and, finally, lays out marching orders for you to accomplish those things.
Sounds simple doesn’t it?
In theory it is, but, unless you are careful, even the best plans, financial or otherwise, can fail. If something is missed in the snapshot of the current circumstances, it can lead to the wrong path forward. If the plan isn’t known by all parties involved, then those parties will never know how to work together. If a plan isn’t executed as drawn up, of course the desired results are unlikely to follow.
Think back again to Churchill. He was the leader of an army that had many moving parts and was fighting battles on many different fronts. Without all of them functioning together as a unit working towards a common goal, they would have failed. What if one unit didn’t do what they were supposed to do? What if the plan wasn’t communicated to everyone? What if Churchill himself didn’t have a full, accurate reading of everything that was going on before designing his plans?
This can be the case with our financial plans too. Many families haven’t taken the time to get a firm understanding of where they are currently, let alone know what they want to accomplish. They work with several different professionals to set up pieces of their financial picture without ever sharing the full picture with anyone.
They bought insurance through a broker that they found online. They do their banking with the bank their parents brought them to. They work with an investment guy who they met because he was their neighbour. And in the interest of diversification they also work with another advisor who is their cousin. They bought a mortgage from whoever gave them the lowest rate. It goes on and on. None of these professionals are trusted with the whole picture. None of these professionals know what’s important to that family, they have simply sold them a product. And the result is that all your ‘financial units’ are working individually, not as a whole towards a common goal.
The power of a financial plan is first in the creation, when you can think and make decisions about what is truly important to you. And then, in making sure all the pieces that you implement are working together for you, towards your common goal.
If you don’t already have a financial plan, please consider whether your financial pieces make sense to you, are working together, and ultimately are getting you closer to what is important to you. Remember the great battle that Churchill won and apply his wise words to your financial plan.
Certified Financial Planner