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6 months ago

Unintended Consequences

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Financial planning – or really any kind of planning, for that matter – is really about reducing the likelihood of unintended consequences.

Some of these scenarios are pretty obvious, I think.

If you spend every dollar you make (and then some), you’re jeopardizing your future and your retirement. You’re not, I assume, making a deliberate choice to compromise your future in exchange for living it up today. This is an unintended consequence.

You buy the biggest house you can by borrowing as much as a mortgage lender will give you. Some potential unintended consequences include less discretionary income for savings or paying down student loans or credit card debt.

But unintended consequences aren’t simply about spending too much today at the possible cost of a more secure future.

What about saving too much?

This can have the opposite effect.

Sure, saving too much is a good problem to have, if it’s a problem at all. But an unintended consequence of saving too much is that you might be trading an overconfident future for a less than optimal today. In other words, maybe you’re missing out on opportunities to travel more or have a little more fun along life’s journey instead of saving for tomorrow.

Here’s one I encounter a lot . . . a “let’s be conservative” philosophy underlying financial planning decisions. This might manifest in areas like planning to work longer than is actually necessary or not including an anticipated inheritance from a parent or other family member.

While I get the thinking behind erring to the side of conservatism, by not including likely events or making manual adjustments to make them “more conservative,” you could unintentionally be making more aggressive decisions elsewhere.

For instance, by being more conservative in some areas of your finances, your financial plan might necessarily call for more risk, more savings or a later retirement in order to make up for it.

This is another example of unintended consequences.

OK, so maybe you get this idea of unintended consequences in your finances that can trickle over into your lifestyle.

What do you do about it?

The first step is to realize there is no magic bullet that will solve this for you. Instead, I encourage a regular, ongoing financial planning evaluation to review past inputs and assumptions and accommodate new information as it becomes available.

This is where financial planning becomes much more important and useful than simply having a financial plan (which is really just a snapshot in time).

If you’d like to review your finances and your lifestyle to uncover potential unintended consequences as well as get plugged into a financial planning system to make the inevitable adjustments and course corrections that will be needed from time to time, please let me know.

I’d love to have that conversation with you.

*Originally published here.

Russ Thornton  is a financial advisor and the founder of Wealthcare For Women located in Atlanta, Georgia. He helps women shrewdly and powerfully manage their money with confidence. He has 23+ years experience managing wealth, and has helped countless people create financial plans for retirement, caring for aging parents, supporting adult children, savings, investments, and most importantly, living a great life.

Contact him directly: [email protected]   404.254.6993 (direct line)

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7 months ago
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