There's a lot of well-intentioned advice out there regarding personal financial planning and a lot of it comes across as reasonable. Celebrities from Dave Ramsey to Elizabeth Warren have proposed saving 'X' percent of your income, spending 'X' percent, and even given the average person a fallback order of operations for not just how much to save, but in what sequence and priority that savings should come. Lots of this generic advice can be helpful to a person who has absolutely no frame of reference, which, to be fair, is a lot of people. You don't come out of the womb intuitively understanding what 15% or 20% savings will turn in to by your projected retirement date. But there's a big problem with this line of recommendation...it rarely considers the human on the receiving end.
There are both quantitative and qualitative reasons why generic financial planning advice often leads to failure. The quantitative part is easy to understand. If you save 20% of your income, with much of that going towards retirement savings starting in your early 20s and you retire around 65, the chances you succeed in creating a retirement that's at or maybe even above your current standard of living are good. If you do the same starting at 55...sad trombone. If you do the same thing and intend to retire at 45...sad trombone. Much of that advice is just math built on past stock market returns and a 30-40 year savings period. The math isn't incorrect, it just applies to far fewer people than you might guess.
It's not uncommon for younger people to get out of the gate a little slower financially, especially in the last 15-20 years when viewed in the context of crushing student loan debt. It would be easy to look at a couple of successful professionals in their 30s who make identical salaries and assume they're on the same path. Maybe they even came from the same college. But what if Mom and Dad picked up the tab for one of them and the other financed the entire thing? What if one of them decided to explore life abroad before entering the workforce or had a child with a serious (and expensive) medical condition? Personal financial planning requires the context of the person or the chances of failure skyrocket.
An analogy I've used in the past is, if you have a 50-year-old that's 400 pounds and wants to lose 150 of them and a 20-year-old that wants to be an Olympian, you don't put them on the same diet and exercise regimen. The same is true for financial plans. Did you start when you were young? Did you start when you were old? Are you starting with a clean slate or digging out of a big hole? Are your mom and dad likely to leave you a lot of money? Are you planning on retiring early or late? All those things matter IMMENSELY. If you take someone who wants to retire at 65 and they change their plan to 55, the impact is absolutely massive. They're saving for 10 years less, they're spending for 10 years more, their money is compounding at a lower rate due to withdrawals, and their withdrawals are necessarily higher early on because they generally must wait at least 7 years to take Social Security (which they'd then be taking at a significantly reduced rate). It's a BIG deal.
Beyond that, there's the qualitative component. Money means something very different to everyone. So does the source of a person's savings -- their job or career. For those punching the clock and counting the days, a job is just a means to an end. A person in that situation better have an airtight retirement plan because, to them, retirement isn't something they hope to achieve. On the other end of the spectrum, someone who loves their work and doesn't necessarily plan to retire likely doesn't have the same sense of urgency. They might save for optionality's sake or to ensure that their family is taken care of in the event something happens to them, but hitting specific numbers at specific deadlines and saving exactly 'X' percent might not be as important to them. And that's okay. The job of an individual building their plan, either with the help of a planner or on their own, is to be honest with themselves about the importance of each individual goal and what it will take to achieve that. An advisor's job is doing the quantitative work, but also making sure they understand where a client is coming from, because building a perfectly crafted financial plan that doesn't fit someone's values is just as useless as the 50/30/20 rule or no rules at all.
An individual's family situation and feelings about legacy are equally important factors. A single person with no children or grandchildren likely needs to save a lot less than a business owner who plans to pass on his or her wealth to multiple generations. Someone who wants to leave the most tax-efficient estate possible to their kids will need to take different steps during their lifetime than someone who plans on leaving everything they have to charity. And while the steps themselves are measured quantitatively, it's accurately identifying people's 'why' that allows you to work towards that in the first place. Otherwise, everyone is just the same generic avatar. Asking a single person who wants to spend their last nickel on their last day to save an aggressive percentage of their income is likely to lead to some cognitive dissonance -- the kind that either leads to plan failure or a (deserving) advisor change.
How We Build Plans That Actually Work
This is why our planning process starts with understanding you, not your numbers. Before we talk about savings rates or investment allocations, we spend time discovering what truly matters to you. Are you the person counting down to retirement, or do you love what you do and want flexibility? Do you want to leave a legacy for your children, or are you planning to spend it all on experiences? Are you starting from scratch at 45, or are you 30 with a head start from family wealth?
Once we understand your unique situation and goals, then we build the quantitative framework around that. The math has to work, but it also has to work for you specifically. When life inevitably changes -- and it will -- we can adjust the plan because we understand the underlying priorities that drive your decisions.
The point of all of this is very simple. Plans that match a person's situation and values are infinitely more likely to succeed than generic plans. Because the numbers match the need. Because the numbers match the intentions. Because the client is motivated to make the numbers work. Because the advisor can fall back on the why when the numbers aren't what they need to be. Because money is a means, it's not an end.
If you've tried financial planning before and it didn't stick, or if you're tired of advice that doesn't fit your actual life, let's start with a different approach. Instead of beginning with how much money you want to have, let's start by understanding what's most important to you first. Then we'll figure out exactly how to achieve that.
Ready to build a plan that actually fits your life? Let's start with a conversation about what matters most to you.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.