A Spreadsheet is Not a Financial Plan

financial_spreadsheetOr Numbers Do Lie

Our industry spends a lot of time producing spreadsheets and other numerical financial reports that are presented in a very somber manner. It is almost as if the numbers are some sort of religious text filled with great meaning. I understand the numbers are important, but the spreadsheet approach to producing them ignores the real world. The next time someone in financial services presents you with a spreadsheet, listen to the words they use when showing you the numbers. You will hear things like, “this is based on an assumed inflation rate of 3%, or “we have assumed an average rate of return of 7%”. Anytime you are being presented with numbers and you hear the word “Assume or Assumption” you should be very careful in using the information that comes next.

You see, once something like a spreadsheet is put on paper, it is static and can’t be changed. However, the only constant in life is change. Interest rates change, the economy changes, our health changes, markets change, taxes change, heck, even the rules change! A spreadsheet can work in a controlled environment. Unfortunately, life is messy. Stuff happens all the time that we didn’t expect. For example, even the folks who thought home prices would go down in 2007-2008 didn’t expect the move to be that extreme or to have such a wide spread influence on every aspect of our lives even today. Many say in retrospect it was clear, but NOBODY could have anticipated the breadth and depth of the downturn.

I have a client who, up to that time, had done most of his own investing and was constantly updating his spreadsheets to reassure him that his money would last a lifetime. He was convinced that he had used conservative assumptions and that his careful planning would provide a generous retirement lifestyle for him and his spouse. Every time he showed me his updated spreadsheet, I would ask, “What happens to your plan if the market goes down by 20-30%?” he would respond with silence. This was because his spreadsheet couldn’t adjust for that possibility.

Once his portfolio was devastated by the market, he came to me for an alternative. We reduced their risk exposure by focusing on what they really wanted, a comfortable lifestyle that they aspired to, and the assurance that they would not run out of money regardless of changes in markets, health, interest rates, etc. The solutions we agreed on and implemented took care of all that, yet he has a hard time giving up old habits. He still tracks his old portfolio and updates his spreadsheets, but now when he comes in for his annual review and planning meeting; we spend time working on the things we can control, making adjustments to those areas affected by the changes in his world and elsewhere, since our last meeting.

Remember, you already have a financial plan; the question is whether it is working for you. For most people their plan evolved with a decision here and a decision there. It is kind of like that junk drawer we all have in our homes. Stuff gets there on a haphazard basis and isn’t integrated or coordinated.

A true financial plan keeps you in control of your financial future, considers things that could go wrong (health, market turmoil, family changes, tax changes, etc.), and allows you to adapt to both internal and external changes. This is the basis for all the work we do here at Gainer Financial and Insurance Services. Maximize what you are doing every day, make every dollar count and you will succeed to the best of your ability! I know it sounds simple, but many have trouble getting started. A journey of a thousand miles starts with a single step. If we can assist you with that process, contact us and we can help you get started.

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