It could almost be a riddle,
Q: What do a financial planner and a weather forecaster have in common?
A: Neither knows for certain what tomorrow will bring.
When you look at a photograph of your child, you can't help but try and imagine what that young boy or girl will look like as a man or woman. As the child grows and matures some features become evident like the shape of their face, the color of their eyes, and the size of their nose. Combined with family history you can see with your mind's eye years and decades into the future. But no matter how precise your initial information is, the end result will still be just a guess.
Financial planning works very much the same way. We start with current data like current assets, liabilities, income, etc. and then add historical trends and statistical variance in an attempt to predict your financial situation down the road. While there is a lot of science to the method, the projections are educated guesses.
A common mistake many clients make is procrastinating developing any plan because they question the accuracy of the input. For example, maybe they have never considered their exact cost of living. They can guestimate it is at least $X,000 a month but it could be $Y,000. Don't sweat it is my advice. Let's assume the worst case scenario, $Y,000. Or let's do two plans; one at $X,000 and the other at $Y,000. Remember, much like a weather forecast, the plan is our best guess and not entirely accurate.
That is why financial planning is an iterative process and not an event. It is vital to reassess the plan every year. Have the goals changed? Are you ahead or behind the projection? What changes, if any, should you make?
Of course our projections are only as accurate as the data we start with, but I would rather begin the journey than wait. We can always improve the quality of our data next year.
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