Financial planning even a caveman can feel good about
Why short-term planning is actually a great way
to reach your long-term goals
As a caveman, Grog doesn’t need to do a lot of long-term planning. He hunts almost every day. And if the day ever comes that he’s too old or too sick or too tired to keep hunting, it’ll be game over. Unless, of course, a sabre-tooth tiger eats him first. Grog is not a unique case. Over the course of human history, life has tended to be “nasty, brutish and short,” as one philosopher put it. For the most part, it’s been considered normal to work until you die. Unless, of course, something eats you first.Things started to change in 1881 when Otto von Bismarck, a German statesman, presented a radical idea at the Reichstag in Berlin: government-funded support for older people. In other words, retirement.For the first time in human history, there was a plan that would permit everyone to eat—even those who could no longer hunt. Retirement gradually became the norm.
In 1880, almost 80% of men aged 65-plus worked.
Today, that number is barely 10%.
After a lifetime of hard work, it’s really nice to unwind and enjoy the fruits of our labour—even though most of us will need to supplement government programs with our own personal savings.
That’s where things get tricky. We humans have had a long time to get good at avoiding things that might eat us. But we’ve had a lot less time to get good at retirement planning. Or any type of long-term planning. And we’re still not very good at it.
It’s not easy. The future is distant. It can be difficult to picture clearly. And even if you think you know exactly how everything is going to happen for the rest of your life, let’s face it—you’re probably wrong.
So you have to start working in your 20s, save for a retirement 30 or 40 years down the line, and have enough money to last until age 90 or more. And, oh yeah, a lot of unpredictable things can happen along the way. Okay, then.
There are some people out there with job titles like “Financial Planner” and “Financial Advisor” who are supposed to help you solve this challenge. A few of them are good at what they do. Most aren’t. And just about all of them will be tempted to look at things the way Grog did—focusing more on their own short-term rewards rather than your long-term goals.
So if long-term financial planning practically goes against human nature and the future is highly unpredictable anyway, what’s the best way to create a lifetime of financial security?
It may sound crazy, but simply shortening your focus to six months at a time solves almost all the problems of long-term financial planning.
Think of it this way: if you were launching a rocket to the moon and your aim was off by just one degree when the rocket took off, you’d miss the moon by more than 6,600 kilometres. But if you adjusted your course every 100 metres, you’d hit it every time.
The same principle applies to your financial plan. Start by setting your goals. For most people, the big one is retirement. For many young families, a close second is setting money aside for a child’s post-secondary education.
These goals give you a starting point for how much you should be investing each month, how much insurance you’ll need to make sure you reach your goals even if something bad happens, and how to reduce the cost of your borrowing to improve your cash flow.
Then, six months later, just take a few minutes to adjust based on what has happened. Did you get married? Find out you’re having a baby? Decide to change careers? Make or lose more money than you expected from your investments?
No problem—just update your plan, adjust your course by a few degrees, and you’ll be right back on target. No need to predict the future. No need to tackle things 10, 20 or 30 years down the road.
This style of planning has always been the smartest and most mathematically sound, but it has never been practical for most people. Almost no one has the time or know-how to do it themselves. No bank or financial advisor can do it. And no robo-advisor has ever come close.
Planswell changes everything. We’ve made it easy to create an amazingly good financial plan online and for free, so you can feel better about your money and have the freedom to do more of what you love.
It only takes about five minutes to create your plan. We’ll do millions of calculations to give you the one magic number you need to contribute each month to achieve your goals. In six months, we’ll help you adjust that number to make sure you succeed. And the whole time, we’ll take care of your investments, insurance and borrowing cheaper and easier than just about anybody else.
Too bad Grog didn’t have the Internet.