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April 20, 2023
Financial and retirement planning is hard. Don’t beat yourself up if you haven’t done everything you think you are supposed to be doing or fully understand every strategy you could consider for greater wealth and security.
Planning is hard for a variety of reasons. Let’s take a look at why and what to do about it:
When creating a financial plan for the future, there are a wide variety of interconnected levers. You can almost think of financial planning as playing a game of whack a mole. Well, wait that is way too simple. Financial planning is actually more like multi dimensional chess.
You make a minor change and it can have a cascading impact on a host of other factors over multiple time periods.
There are rules of thumb and frameworks (check out 4 steps to a meaningful retirement plan) that can help simplify things, but there is no point in hiding the fact that building a personalized financial plan requires really complex calculations (of both the mathematical and theoretical variety).
The NewRetirement Planner gives you full access to all of the levers that impact your plan. Playing with these factors can help you immediately see the big impact of seemingly minor changes. Don’t worry about creating the perfect plan, play with the levers (savings, income, taxes, longevity, economic factors, etc…) to learn how they interact with each other.
If you want to feel responsible for your own financial future, there is a lot that might be useful to know that you probably haven’t mastered. And, the more you know, the more you realize what you don’t know.
The good news? If you are feeling overwhelmed, that could very well mean that you know more than most people.
Recently, on the NewRetirement Facebook group, a member lamented, “I am overwhelmed with terminology and the need for decisions I have no background for making. What is draw-down vs annuity, and how do you even begin to decide which to use? Should I care what Monte Carlo method NR uses? How do I wisely choose the input assumptions on the models I run? And where is there a basic glossary of terms?
The answer? Don’t worry! You don’t need to know everything. Just be open to learning. By building a plan, you are already much farther ahead and learning much faster than most people. Take baby steps and try not to get overwhelmed. And, start with a simple framework.
You don’t need to know them, but I’ll bet you still want the answers to the questions asked above. Here they are:
Want to know why planning is so hard? It actually goes somewhat against human nature to build a financial plan for the future. Our brains just are not wired that way. There are probably hundreds of psychological reasons that make financial planning difficult for most people. Here are some of the most critical:
Learn more about how to overcome your own psychology with 16 ways to outsmart your brain.
Discipline is the ability to control one’s behavior and actions to achieve a specific goal or result. It involves making conscious decisions and taking deliberate actions that align with one’s goals, even when faced with distractions, obstacles, or temptations.
Many people prioritize immediate rewards over long-term benefits. This can make it challenging to adopt discipline because it often requires delaying gratification and making short-term sacrifices for long-term gain.
Set financial and retirement goals: Without a clear goal or purpose, it can be challenging to stay motivated and disciplined. Having a strong reason for why you want to commit to a plan can help you muster the discipline you need.
Money can be a source of stress and anxiety for many people. Emotional factors like fear, greed, and impulse can make it challenging to make rational financial decisions. This can lead to overspending, undersaving, or taking on too much debt.
First, acknowledge your emotions. By acknowledging and understanding your emotions, you can take steps to manage them.
It is also useful to have goals and a clear rational plan for achieving them. This can help you stay focused and motivated, even when emotional factors arise.
For every financial truth, there is almost always an equally rational counterpoint. It can be incredibly confusing to know who to listen to and what advice to follow.
As an example, let’s take something simple about investing:
Widely accepted wisdom, buy low and sell high: There is no doubt that “buy low and sell high” is good advice. However, it is probably not the right advice for most people. Buy low and sell high is good advice if you you know how to do it. However, it takes a lot of expertise (and some luck and a big degree of risk) to get it right.
Counterpoint: Many financial experts will advise that a better investment strategy for most people is to buy at regular intervals – no matter the price of the investment. By investing a fixed amount of money at regular intervals, investors can reduce their exposure to market volatility. Rather than investing a lump sum at one point in time, dollar-cost averaging allows investors to spread out their investments over time, potentially reducing the impact of short-term market fluctuations.
Remember that there are no right answers, only what is right for you. It is helpful to:
For many areas of our life, we can rely on friends and family for support and advice. Financial topics however are often taboo and casual financial tips from can’t always be trusted nor will they always be relevant.
Hiring a financial advisor can be expensive and, if the advisor is earning commissions, their motivations may not always be aligned with your interests.
There are some great books and web sites. And, we of course recommend the NewRetirement Planner and also NewRetirement Advisors for affordable fee-only financial advice. Collaborate with a CERTIFIED FINANCIAL PLANNER™ professional from NewRetirement Advisors to identify and achieve your goals. Set up a FREE discovery session.
If you are aware of these challenges you can overcome them and create a solid financial plan that can deliver financial security and peace of mind.
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