Why ordinary financial planning fails

March 1, 2006
Pssst. Hey buddy. Want to buy this $5,000 financial plan for only $250?

Pssst. Hey buddy. Want to buy this $5,000 financial plan for only $250?

Answer: No thanks. I already bought an expensive model. It’s sitting in my top desk drawer.

I have concluded that ordinary financial planning simply doesn’t work, whether it’s provided by a fee-only planner or someone who sells commissioned financial products. The fact is that, even though financial planning is goal-oriented and future-oriented, it simply isn’t life-oriented. Life never goes according to a plan. Financial planning only works in a totally controlled environment in which income, cash flow, taxes, and investment returns never change.

What is needed is a whole different approach to achieving financial success. You can use planning to buy a car. You can research models and financing options, and shop for price. You cannot plan guaranteed retirement success. In his book, The Golden Key to Strategy, author Gary Gagliardi spells out a different approach to achieving success in a “contested” environment. According to Gagliardi, in a life that is characterized by unexpected challenges, it is better to use strategies than to use planning. Strategy is a way to assess your current position and to implement step-by-step advancements or improvements. Planning says you need to climb on top of the roof. Strategy says you need a ladder. Strategy aligns with a person’s overall mission. Financially, this is attaining permanent financial freedom. Strategy also aims at overcoming the financial “instincts” we all have. These instincts tend to sabotage our ability to be successful. Strategy helps us move from instinct to intention.

Let me give you three examples of financial instincts as compared to financial intention.

1) How do you define financial success?

The first financial instinct that must be overcome is how financial success is defined. Think for a minute. How do you define financial success? Most dentists define financial success by how large their production or income is. Another benchmark of financial success is being out of debt, therefore eliminating interest expense. I call these definitions of success an Income-Based Paradigm. What is needed is a whole different way of looking at financial success, or an Asset-Based Paradigm. This paradigm involves annual strategies that advance savings and net worth instead of focusing only on income. Generating large annual savings requires an ongoing process of aiming, monitoring, and adjusting. Oh, by the way, budgeting is not a strategy.

2) How do you really improve your financial future?

For most of us, there is little intentional strategy related to our financial success. A financial plan merely contemplates the amount of savings that is needed for retirement. Financial planning doesn’t answer questions like “Would I be better off in achieving my mission of financial freedom by paying cash for a new automobile or using some debt?” or “Can I afford this new house?” Planning doesn’t find cash to save for children’s college education. Financial planning calculates college costs based upon inflation and talks about 529 plans and other tax techniques. Living with intention in our financial lives means to start each year with a sense of mission of specific financial goals to attain for the year. Then strategies are developed to create a step-by-step progress toward these ultimate annual goals.

3) How do you thrive in your financial environment?

Many dentists have a “hunter-gatherer” instinct of financial life. This is driven by a feeling of relative scarcity. What I mean by this is that most dentists think financial success involves living the daily grind of working and having enough money to pay bills. We are all running as fast as we can, picking up dollar bills from the ground until our bellies are full. There is minimal effort taken to learn how to cultivate a money tree that will provide fruit throughout the upcoming winter. This live-for-today mindset ignores the fact that wisdom about money provides exponential rewards. Achieving knowledge and wisdom about the financial environment of saving, spending, taxes, and investing requires life-long attention and intention. Step-by-step improvement to thrive in your financial environment offers exponential rewards. In other words, a lifetime of successful financial strategies causes not just a two-fold improvement but a 100-fold improvement.

Isn’t it finally time for you to have a different strategic approach to achieve financial success? You probably never use that old financial plan anyway.

Brian Hufford, CPA, CFP®, is president of Hufford Financial Advisors, an independent, fee-only planning firm dedicated to helping dentists achieve financial peace of mind. Many dentists attend Hufford Financial Advisors’ Financial Breakthrough Workshops. Upcoming workshop dates and locations are listed at www.huffordfinancial.com. Contact him at (888) 470-3064, or at [email protected].

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