Planning

I want to tell you a quick story about my friend John Stevens. 

John helps run an awesome firm called TCI out of Tucson, Arizona. But he used to be a doctor.

Back during his doctoring days, John had this one patient who wanted to argue about which blood pressure medication he should be taking.

“But wait!” John would find himself saying, again and again, “you still smoke!”

I assume you can see the problem here: There’s no point in talking about blood pressure medications until we address the underlying cause of the condition. 

Similarly, it’s crazy to be worried about finding the best investment before you’ve decided where you want to go. That would be like arguing over whether we should take a plane, train, or automobile on a trip before we’ve even decided where we want to go, or asking for prescriptions before we’ve had a diagnosis!

Step number one is to have a plan. And out of that plan, a process naturally comes into focus. An investment process, a savings process, a process for making decisions about how much insurance to have. But they would all be built on the foundation of the plan.

And then, and only then, do you get to the least important step: finding specific products to implement that plan. 

Most of the “news” you see on the financial pornography networks, and most of the books written about finance are about this little tip of the iceberg, the product. 

I’m not saying the products aren’t important. They are.

But they are the least important part. 

First, have a plan, then define an investment process, then find products to populate that plan.

That is how you make smart decisions with your money.

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

We do planning wrong.

It doesn’t matter what kind—financial, business, life… you name it.

Here’s how we typically plan:

1- We put a stake in the ground where we are today.​
2- We put a stake in the ground where we want to be in the future.​
3- We draw a straight line between the two stakes.

The problem is that because we don’t like dancing with uncertainty, we obsess over making the line as precise and accurate as possible. We think that if we just have a big enough calculator, we can get the line to be an accurate reflection of the future.

But we can’t.

Sorry.

In fact, the only thing we know for sure about that straight line is that it is wrong. We just don’t know why… yet.

But it will be wrong again and again and again because we can’t predict the future, no matter how many numbers we crunch.

The good news? That’s ok. 

That’s right… it’s ok not to know. It has to be ok because there’s no other option.

I’m not saying don’t ever draw the line. For sure, that’s an important part of the planning process. It gives us an approximation, a baseline, a direction to go. 

I’m just saying, don’t confuse the line with reality.

After the line is drawn, we need to relax into the idea that planning is an ongoing process. We need to understand that what matters far more than the line is how we behave when it’s time to make course corrections.

Straight-line planning is about being precisely correct today (again, something that is not possible).

Reality-based planning, on the other hand, is the process of being less wrong tomorrow. It’s the constant work of narrowing the potential range of outcomes over time. 

So instead of trying to carve the perfect plan in stone as if it’s a monument to the future, let’s write our plans in pencil and stay focused on the process of being a little less wrong tomorrow.

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

“If it’s a one-page financial plan, then why isn’t the book only one page?”

I’ve heard this joke a few times since the publication of The One-Page Financial Plan.

While it does make me laugh, the joke actually highlights something I think is really important. I could have written a book with a single page and said this financial plan is for everyone, except for one simple reason.

I can’t predict or tell you what matters most to you. Without that knowledge, I certainly can’t tell you what your goals should be 10, 20, or even 30 years from now.

You have to figure out those answers for yourself. But people can have a hard time knowing what questions to ask, let alone the answers to those questions. So even though it required more than one page, I wanted to make sure you understood how to build your own one-page plan.

All of this leads up to a second question I’ve heard a lot: What does your plan look like?

The exact plan that sits on my desk is the sketch for this week. Anytime I face a big decision, I look at the list my wife and I created. We weigh our options and make decisions that fit our goals. But getting to this point didn’t come easy.

I had to let go of the idea that I needed “details.” It turns out, however, that the one-page plan isn’t really about details. Instead, it reminds me of what I value most, and helps me make decisions that keep me focused on those values.

Of course, the details matter, but at a much later point in the decision-making process. We only muddy the waters if we focus on details, or tactics, first instead of our overall plan.

For instance, the first question I need to ask about any decision involves the potential impact on items one, two, and three. If I can’t say that the choice I’m considering aligns with those three things, then does it really matter if I have my exact portfolio allocation at my fingertips? It’s only after the potential choice makes the first cut that I need to look at the details.

For me, I think of my one-page plan as the gatekeeper for my financial life. Nothing gets through unless it fits with what I value most. The same thing applies to you and your plan.

Plus, you don’t have to live with it for life. I know that my wife and I will revisit our plan after our kids finish school. Something else we value will take the place of that goal eventually.

The most important thing to remember about this process is that it’s about you. It’s about what’s important to you. It’s about what’s important to your family. The things that end up on your one-page plan should reflect what matters most to you. If you feel like sharing, I’d love to see your plans. Just send an email with an image attached to hello@behaviorgap.com.