I can remember talking to family and friends when I first started my financial planning education. One of the most challenging questions that I received was "how much money can I make". The first time I heard it I quickly tried to find the answer as I wanted to know it myself.
However, over time (and after finishing my financial planning education) I have realized that financial planning’s main focus should not be placed on growing wealth for wealth’s sake. Money is a tool, a tool that we use to acquire the things we need and want. Wealth can lead to happiness but only through the freedom that it provides. With that said we have to understand the goal of financial planning and its limitations.
Financial Planning Alone Does Not Make Millionaires
There are many variables that go into the success of a financial plan. Ultimately financial success is earned by the client not the financial planner. This is due to the fact that the control of how a financial plan implemented is an individual’s choice. The simple decisions that we make every day usually have the largest impact on our financial future. These little decisions can also be described as our behaviors.
In addition income, expenses, debt and life style choices impact one’s ability to achieve financial freedom. The financial plan is the road map that can get you there, if it is followed. The decision to follow it rests solely with you.
Financial Plans Include Many Assumptions
Financial Planning is a complex and challenging exercise (and profession for that matter). If you have read some of my other posts then you would know that a comprehensive financial planning includes portfolio management, retirement planning, estate planning, tax planning, risk management and life planning. Each one of these elements alone has many contingent factors and laws that impact the outcome of the decision.
Consider attempting to get all of these elements to work together harmoniously. It is due to all of these factors that financial planners are forced to make calculated assumptions about the future. Some assumptions for example include stock market performance, tax law changes, retirement account regulation, inflation rates and potential future financial liabilities. All of these affect the outcome of even the best financial plan.
Implementing a Financial Plan is Hard Work
A financial plan, by itself, will not improve a financial situation. The most challenging part of the financial planning process is the implementation. This is due to the fact that often there are some behaviors that have to be modified in order for the plan to actually work.
Our behaviors, especially the older we get, are difficult to change. Achieving financial freedom is difficult; your expectations when getting started in the financial planning process should be adjusted accordingly.
Probably the most difficult part of implementing a financial plan is the sacrifices that most must make. Many of us live beyond our means; this is especially true when you account for a lack of savings and investments. To ensure that you are ready to implement a financial plan I recommend mentality preparing for the journey ahead.
I hope this article clearly articulates the variables that can affect the outcome of a financial plan. Understanding the assumptions that go into a financial plan and the hard work that’s needed to implement it is extremely important.