How to plan for an unknown future: the positive side of uncertainty
It's natural for you to want some certainty in your financial planning.
You're human after all.
You want to know a decision will turn out right, or if you'll be able to achieve a goal. Of course, certainty is simply not something anyone can provide.
In fact, most successful planning happens when you acknowledge that you can’t be certain, find a way to be okay with that, and do the work anyway.
Take retirement planning.
The traditional time frame for this is from age 60 to 95. However, I often run cash flow models for our clients up to age 100 which, given advancements in healthcare and overall life expectancies globally, isn't extraordinary any more.
In that long time frame, so much can happen. Imagine how much more can happen if you're currently 35 years old and trying to make financial decisions that can impact the rest of your life?
I've done a lot of reading around the psychology of humans and money. Best-selling author Morgan Housel talks about it in a video we recorded here.
A lot of it comes back to how humans make decisions.
We like to think we make decisions by taking in a list of pros and cons and rationally comparing the two.
Then comes some sort of mental calculation, followed by a decision that can be traced back, in a straightforward, logical way, to the original inputs.
Not the case.
How we make decisions is much more related to our upbringing and experiences. We take in lots of information constantly and eventually, a decision comes out which just feels right. One we're usually pretty attached to (because of biases).
For this reason, it's silly to think of financial planning as a process of steadily and rationally heading towards a specific, known goal. The goal is there, but the journey to achieving it depends as much on your behaviour as it does on the guidelines we put in place along the way.
You can think of this as uncertainty 'on the inside' - our own hearts and minds.
But what about external uncertainty?
- What will interest rates be in 5 years?
- Will you sell your company?
- Will you get sick?
- Will you receive an inheritance?
- Will there be another pandemic?
So much of the clarity or certainty around these issues appears only at the last minute.
I don’t know. You don’t know. Nobody knows.
When it comes to financial decisions like “How much should I be saving?”, this lack of certainty can be painful.
It is hard to not know.
We crave certainty to the point that it’s actually painful to not have it.
We'd all love to know what’s going to happen.
With our children. With our marriages. With our kids’ schools. With our employees. In our businesses. With the climate.
For me, I'd love to be able to tell my clients what will happen in their lives, or the overall economy.
The only solution, is to make ourselves resilient. Prepared for whatever comes our way.
At AES, we do this via acting as the CFO to your life (with you as CEO).
We may share uncomfortable truths as part of your ‘Life Strategy’, which covers all your big future life decisions and can help us guide you to avoid mistakes, reduce charges, improve your returns, and structure your financial guardrails in the best way possible to deliver clarity, confidence and control moving forwards.
But you should also build resilience outside of your money.
Money alone is not a source of strength.
We tend to forget the other parts of our lives that can help us respond to whatever life throws at us: our relationships, our education, our skills, our creativity, our ability to adapt to different circumstances, our work ethic, our professional network, and so on.
Here are some non-financial ways to build resilience:
- Emotional. Meditate. Journal. Spend time outside.
- Romantic relationships. Have regular date nights. Go to couples counselling. Meet regularly with one another to talk about what you need. Make a habit of telling the other person what you appreciate about them.
- Friendships. Call your friends. Go out to coffee. Send texts. Go on a hike together.
- Career. Get a mentor. Network regularly. Build skills. Go to conferences.
- Physical health. Eat right. Move your body. Close your eyes before 10pm.
- Cognitive health. Read books, take classes about interesting subjects, start learning how to throw pottery or plant a garden.
A bonus here is that all these things are within your control.
Remember, you can’t control what interest rates are, what the climate does, what other people do, what tax rates are, etc.
We make the best plan with what we can know now and with our best guesses for what will happen in the future.
Then we have to rely on our resilience and ability to pivot as things change.
To minimise risks.
As Carl Richards once said,
Uncertainty is scary and unpleasant...but unavoidable.
What do you need to do in order to accept that reality and also move forward in planning and living your life?
If you want to work with a financial guide who can help you build the life you want despite the fact that nothing is certain, get in touch.