Part 4: Strategy or How the heck do I get to Financial Freedom?
4.10 The assumptions should ensure it works successfully despite shit happening
Has your plan taken into account things going wrong in the future? Is it shock-proof? How do you make it shock-proof? What is the rationale behind the planning that should give you the confidence it is? What is the role of different asset classes in your plan? Finally, what is the One Thing that you can do to make your plan a success?
When you are planning for the future it’s really stupid to believe that shit won’t happen. A plan that works only under near ideal conditions is more hope than a plan. At the same time, if you want a plan that handle anything and everything that can potentially go wrong shows that you are a hypochondriac who should be institutionalized, ????. But jokes apart, a good plan must ensure success and enable you to make changes to it when unbelievable shit happens. Setting realistic expectations is the key here!
A plan made with aggressive assumptions on returns can put your goals at serious risk. In the table below you can see by how much you could miss under different scenarios. A plan assuming 20% returns but earning only 12% will fall short by more than 50%.
So let check out how the plan that you made on Moneyworkls4me or elsewhere measures on this. In all financial planning there are some assumptions of expenses and returns. And the first thing is that you can make changes to any of these and get a revised plan. But for that you need to understand the rationale in your planning process. I am sure this will reassure you that you actually have an amazing Plan and Planning Tool. If you are using a different tool or service you need to check it against what you learn here.
Let’s check the default setting on the Financial Plan done @ moneyworks4me.
Rate of inflation and returns on debt and equity assumed in the planning is deliberately on the conservative...........Read More
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