The Worst Plan Is Not Having One

What’s the most critical component of a financial plan?

The ability to stick to it ranks at the top of the list.

Many fail because their plan doesn’t coincide with unique individual goals and values.

Asset allocation is essential, but it doesn’t touch the heart.

No dollar value trumps peace of mind.

Paying down debt is a prime example.

With today’s record low-interest rates, the default advice is don’t pay down your mortgage. Invest the money for a higher return.

The numbers make sense.

Interest rates are at historic lows, significantly lower than the historical average returns of the broad stock market.

Why pay off a 3% mortgage when you can earn 7% or more in the markets?

Math isn’t what makes personal finance personal.

Recently, we posted this in our FB Teacher Money Matters Group.

Overwhelmingly teachers responded – DEBT.

The comments included fears of not being able to pay down debt. Debt avoidance goes back to our days as cavepeople. Flight our fight is the default reaction to unknown threats. Since flight makes debt more stressful, the average person wants to pay it off as soon as they can.

Debt isn’t a math lesson; it’s a people lesson. Charles Darwin knew a thing or two about our survival instincts.

Why make a financial plan that works perfectly on a computer program but keeps clients up at night.

Don’t let the perfect be the enemy of the good.

Christy Bieber of the Motley Fool puts this into perspective.

It may be better to work toward the financial goal you’re most interested in achieving, even if you’d theoretically be better off with different money priorities. A plan you can stick to is always preferable to a plan that’s perfect on paper, but that you can’t put into practice. 

Investing the funds would most likely create more wealth than paying off a low-interest rate mortgage. Those extra dollars aren’t worth it if they cause additional stress or, worse, abandonment of the plan!

Not considering this is a form of financial malpractice.

There’s always room for compromise, often ignored in our current state of political tribalism.

How about paying down 50% of the debt and investing the rest?

The math might be perfect, but humans aren’t computers. Their cognitive flaws are enormous variables in any complicated personal finance equation.

Motivating them to get to the end zone is all that matters.

What’s the real value of a financial plan? I can assure you it’s not the percent of the money allocated to Emerging Markets.

Helping people reach THEIR goals; not yours is a start.

Listening to their fears is a non-negotiable priority.

Empathy doesn’t mean giving in to every irrational desire. Choosing one’s battles is a skill in itself.

Challenging someone’s darkest fears about money is a battle to avoid.

Giving choices and guidance is the path of least resistance.

Sticking to a plan is much easier if it’s not affixed to you by someone else.

Personal freedom is more important than adding a few more Shekels to the pot.