Maintaining the Basics in Financial Planning

I’ve gone the entire ski season without using some cliché sports analogy about skiing and financial planning. 

So here it comes.

I’m taking skiing lessons and reviewing the basics.  I thought this would be boring.  And it was.  But the payoff was huge. 

This also happens with financial planning.

Lessons Make a Huge Difference

Whether it’s skiing or financial planning, making tiny tweaks can make a big difference initially and over time. 

I’m a good skier.  I still take lessons. Why?  Because they work. I get better.

Financial planning is similar.  Most people who come to me are doing a pretty good job with their finances.  It’s the little tweaks that make all the difference.

Getting better at skiing increases my fun factor and reduces my chances of getting injured immensely.  That’s worth the cost to me and the frustration of relearning something and changing my whole approach to skiing.

Your financial planning experience should be the same. 

The Basics Still Apply

Every time I go out with my teacher and after we’ve warmed up, we end up on some easy run doing drills.  I do my best to pay attention and not to roll my eyes.  (Good thing it’s a group class.)

Truth is, I’m not good at those drills, and if I were, I’m sure she’d move on.  

The basics matter.  Just last week I got a lesson on driving my skis with my feet and focusing on my toes.  I had forgotten this. 

Seems pretty basic and something I should be doing automatically.  Uh, no.

Two days later, I’m skiing with way more control and having way more fun.

Financial planning is no different. I often need to remind clients about some of the basics:

• Live within your means. If you have a spending plan, stick with it.  It’s the building block of a financial plan.
• Anticipate big expenditures: Integrate them into your plan, set the money aside, and spend it.  Strangely, spending it is often the hard part.  Spend it!
• Don’t forget recurring big expenditures: For instance, include getting a new or new-to-you car every 5-10 years.  You may not need one now, but if you have another 30+ years to live, you will likely buy several.
• Keep a reserve account: Ideally 3-12 months’ worth of expenses.  It’s easy with a big expenditure to want to use that cash and not sell investments, but that reduces your reserves.  Cash is still king.  Keep it around.
• Build in contingences: These are varied and unpredictable, but you should have a sense of the impact of long-term inflation, premature death, disability, and long-term care expenses. 

Practice, practice, practice

It takes time and practice to get used to pointing one’s skis straight downhill and anticipating and taking that first turn, especially when looking down the hill from the top is terrifying.

There are many times in life that can be financially terrifying:

• Hiring the first or fourth employee and meeting payroll.
• Making that first college tuition payment.
• Paying taxes on that first Roth conversion.
• Not making money but spending it in the first year of having no paycheck (retirement).

This list goes on.

My clients will tell you – and I have been witness to the same – that once you do these things several times, they are not so terrifying. 

And don’t forget to look back up from the bottom and think, “Wow!  Look at me!  I did THAT!”

Use the Buddy System

When going into the trees, deep powder, or outside avalanche mitigation areas, skiers are highly encouraged to be prepared for an avalanche and use the buddy system. 

Same goes for financial planning. 

Whether you use a friend, family member, or financial planner, have a buddy for an adventure.  It reduces the stress and increases the fun!  It also tends to reduce the instances of injuries or mishaps. 

Terrifying times of life are much better with a buddy.

If you want to talk skiing, please reach out.  And, yeah, we can talk financial planning, too.