Four Things That Impact the Financial Plans of Everyone

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After over 20 years of being a financial planner, you certainly pick up a few things. You realize every plan is different, and every individual is unique. I’ve learned people’s tendencies and what makes different people tick. I’ve also had the pleasure of seeing countless people achieve their life goals, which is all extremely satisfying stuff.

However, for all the differences we have, I find equally interesting the fact that the key tenets of what make our financial plans work are relatively similar, and the list is fairly short. This naturally bodes the question of what are the key drivers in making our financial plan work?

The good news is, again, there are only a handful of truly defining data points that matter. The bad news? There are only a handful of defining data points that matter.

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Now, keep in mind we are a firm that truly believes in financial modeling as a core tenet to understanding one’s finances.

OK, so what truly impacts your financial plan?

1. How long you live.

I often make a terrible joke with people, saying, “If you plan to die a day after you retire, your plan is easy.” But there is some truth in those words. If we are defining successful retiring as not running out of money, well, then, naturally how long we need to rely on our life savings matters. If you do indeed live for one day or one year after you retire, the plan is easy.

That said, more and more people are living longer with modern medicine, and this has a major impact on one’s finances.

2. How much you spend.

The next piece of data that is likely the most impactful to your plan is expenditures. Three identical individuals with identical assets but with drastically different spending rates will have various degrees of success in retirement.

When people ask me how much money they need to retire, the answer always comes from understanding what they need to live on in retirement. It goes without saying that an individual spending $100,000 a year vs one spending $300,000 a year have different needs to succeed.

The good news is this is one of the easiest things that you can control. The bad news is it takes actual work.

3. How much you save.

Well, shocker alert here: Your ability, and willingness, to save is hugely impactful on the probability of reaching your goals. Our clients who prioritize savings and investing simply get there sooner and better. Not only that, but they also arrive at their destination with more options than those who don’t prioritize savings. It truly is a marathon and a sprint all bundled up together.

Again, the good news is you can easily control this and simply make small changes. Additionally, the sooner you start, the more likely you are to achieve your goals.

4. Everything else.

I’m going to cover a lot of ground in this category. Although, when you die, how much you spend and how much you save are some of the largest contributors, there are certainly a handful of others that move the needle. Such as how much you earn. Naturally, the more you earn, the more you can save, although that doesn’t mean you always do save.

Next up, how your investments are structured. If you are more risky vs risk adverse, that will directly impact your financial goals. Also, in this line of thinking is everyone’s favorite word these days — inflation. The more goods increase in price, the more you’ll need in present value terms. A mixed bag here of good and bad news. The good news is some of this you can directly influence. The bad news is, try as we might, things like inflation are completely out of our control.

Those who fail to plan, plan to fail

I guess the key things I would glean from this blog are a few-fold. One is that there aren’t a million large things that impact our plans. Two is that many of these factors you can directly control at various levels. Three, you sadly can’t control all these factors, but you can control enough of them. And finally, four, the more you plan and model, the more you can see where you stand and what moves your needle the most.

We’re always here to help any way we can, and know we aim to have you live a wealthy, healthy and happy life.

Diversified is a registered investment adviser, and the registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the SEC. A copy of Diversified’s current written disclosure brochure which discusses, among other things, the firm’s business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov.

Diversified, LLC does not provide tax advice and should not be relied upon for purposes of filing taxes, estimating tax liabilities or avoiding any tax or penalty imposed by law. The information provided by Diversified, LLC should not be a substitute for consulting a qualified tax advisor, accountant, or other professional concerning the application of tax law or an individual tax situation.

Nothing provided on this site constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments. Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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In March 2010, Andrew Rosen joined Diversified, bringing with him nine years of financial industry experience. As a financial planner, Andrew forges lifelong relationships with clients, coaching them through all stages of life. He has obtained his Series 6, 7 and 63, along with property/casualty and health/life insurance licenses. Andrew consistently delivers high-level, concierge service to all clients.