Learn From Pilots - Create A Flight Plan For Your Financial Journey

Financial planning, including investing, is like flying a plane - at a minimum, you want to maintain a safe altitude (preserve capital), but the ultimate goal is to climb up to a target altitude that will allow you to reach your destination (financial goals) efficiently and with minimal turbulence. At the same time, fluid and uncontrollable environmental conditions (stock market gyrations, unexpected significant expenses) can cause you to rise or fall with little or no notice, requiring continuous monitoring to keep you on track. Even the plane itself requires regular maintenance to ensure that it remains in optimal mechanical condition (your overall plan is realistic, investment fundamentals and risk levels remain solid, and allocations are properly balanced). There is always a certain degree of risk, but you do have control over just how much risk you ultimately feel comfortable taking. Just as only pilots who are certified to fly at night, or to pilot certain aircraft, are allowed to do so, households need to be realistic about their expertise and make sure that they do not take unnecessary risk or get into situations that they are not prepared for. Pilots always use a
pre-flight checklist to prepare for their journey, and the same should be done for a financial planning journey.
These are some items to include on your planning checklist:

Always do your due diligence - this applies to investing as well as to any significant financial decision. Do not make decisions on a whim, or based on what someone else does. Why is it the right decision for you?

Look forwards not backwards. Made a mistake? Join the club, learn from it, and never make the same mistake twice. Look ahead for how to apply your increasing knowledge and experience (good or bad) to achieve better outcomes.

Don't follow generic assumptions, benchmarks, or rules of thumb. Most likely, they don't apply to your unique situation. For example:

You will need to replace 80% of your income in retirement. Really? If you make $100k/year, you have less than $80k to spend after taxes and a 10% 401k contribution, so why would you need to replace more than that in retirement? What if you live off of $60k/year? It's not your salary that should be a driving factor for retirement saving, it's how much you intend/need to spend in retirement.
Use the 4% (3%?, 5%?) "rule". It's not a rule, was never intended to be a rule, and is based on assumptions that no longer apply (like a portfolio consisting of 60% stocks and 40% bonds, with bonds earning 5%). What if the % that you decide on doesn't pay your bills? There's no need to follow a set withdrawal percentage to have your money last through retirement in the first place. This notion was designed as a quick and dirty way to find a "safe" withdrawal rate without doing any real planning. It's irresponsible and inaccurate. Don't be lazy! Determine how much you really need to withdraw annually to support yourself (at a minimum). The withdrawal % is what it is.
Claim Social Security at a particular age. Did they model the long-term outcome for every claiming age based on your particular data (and the 81 (not a typo) combinations of options for spouses, if married)? The only person who could/should possibly make this determination is you.  Understand all of your options, and incorporate those options into your larger financial plan. This is not a black and white decision, and the right decision, for you, depends on your entire situation and needs.
Use a free online calculator to estimate how much to save for retirement. Hah! Sure, 5 questions, a bunch of erroneous assumptions, and the omission of essential information are going to give you a reliable answer that
you should act on. If this is suggested, by anyone, you know that they are clueless.
Too many other notions, potions, and half-truths to mention.

Follow the advice of financial articles at your own risk. Despite good intentions, they are often written by those with insufficient experience who are just repeating what they are told (see examples above), or they are written by those in the financial services industry promoting themselves. Always consider the source! Even reputable organizations and reporters just regurgitate common advice and benchmarks. Your situation and needs are unique and require individualized attention. If all of the commonly repeated "advice" worked for everyone, or even for the majority of households, financial planning would be a breeze and everyone would know exactly what to do! You don't need generic advice, you need fact based, individualized, analysis.

Retire based on your assets and needs, not a particular age.

Create a detailed, realistic, plan for reaching your goals. Just as every pilot creates a detailed flight plan to follow, including contingencies for unexpected events, every household, regardless of age or financial status, benefits from having a written financial plan that they can follow, and update, as needed. For pilots it's a physical safety issue, for households it's a financial safety issue, but for households it also acts as a guide to achieving financial security.
This is the ultimate financial planning check list item! As Benjamin Franklin once said, "If you fail to plan, you are planning to fail". It's not enough to know where you want to go, you have to know how to get there.

Remember, if you can see the train coming, you can take steps to get out of the way and protect yourself. But if it blindsides you, there's little chance for recovery. Be financially prepared by always having a comprehensive plan. Can you predict the future? No. Can you prepare for what might happen? Yes, and the more prepared you are, the better you will be able to react to unexpected challenges. Will your plan need to change over time, as your life situation (marriage, kids, job change, etc.) changes? You bet. But if you have a map to follow, you will never be lost, never have to rely on guessing and hoping, never have to consider what is recommended by someone who doesn't know you or your situation, and your chances of successfully finding the best way to your destination increases exponentially.

Pilots do have one advantage when preparing their flight plans - they have specialized training. Most households do not have dedicated financial training, but this should not be a deterrent. There have been many cases of a person with no experience as a pilot having to take over the controls for a pilot who has become incapacitated. With help from pilots describing specific actions to take over the radio, they have been able to fly, and successfully land, the plane. A person quickly learns that if you push the yoke of a plane forward, the nose of the plan heads down. If you pull back on the yoke, the nose of the plane rises. While this situation may be rare, it shows a capacity to learn, and take action, with the help of clear, and specific, direction.  This is exactly how you learn when creating a financial plan - by entering your own specific data you receive clear direction about whether a particular action/decision will cause your financial results to rise, or fall, and what action you can take to affect the outcome. Most importantly, no specialized training is needed.
It wouldn't be wise to rely on a user's manual for flying a plane if it was written only as a general guide for all planes, and lacking the specifics about your particular plane. Likewise, using common benchmarks for retirement planning may be tempting, if you can ignore the fact that they are frequently misleading, inaccurate, and a poor substitute for a sound financial plan. If you want to travel to France, simply being told to head East is not sufficient. But creating an individualized financial plan, with no generic benchmarks or assumptions, will always lead you directly to your desired destination, with you deciding how to get there. You don't want to rely on a flight plan that will have you running out of fuel half way through your retirement trip.

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