In praise of not planning

It’s a good thing that I am a planner by nature because, dealing with personal finance as I do involves a lot of long-term planning. So it might seem a little odd for me to take this position, but there are times when your finances might be better for not having made a plan — or at least for not being completely ruled by your plans.

Don’t take this too literally because planning has its place, but planning can also become tyrannical. It intimidates people from undertaking projects. Once a project is undertaken, too much reliance on planning can make people blind to better alternatives.

So the message here is don’t let planning become obsessive. The following are some examples of when freedom from planning can come in handy:

  1. An opportunist’s career. I have benefited greatly from not having a career plan. I went to college with the intention of becoming a journalist, but the job market was so tight when I graduated that I basically took the first non-fast food job I could find, which was in the operations department of an investment firm. One thing led to another: I got promoted, the firm grew, and I started to learn about the business. It turned out to be a very rewarding career, financially and psychologically. Then, when I got older and wanted to slow down a little, I decided to quit, take some time off, and see what happened. I gradually got into freelance writing, and that has snowballed into a legitimate second career. So, I am back to my first love — writing — but with more money in the bank and more marketable skills because of my investment experience. Not only didn’t I plan this, I’m certain I couldn’t have. Instead, not having a career plan made me more open to seizing the opportunities that presented themselves to me.
  2. The intimidation of big goals. So, let’s talk retirement savings. Suppose you are just starting your career, making about $30, 000 a year, and I tell you you’re going to need to save $2 million to retire. From the point of view of someone making $30, 000 a year, that may seem impossible — so intimidating a goal that it does not seem worth starting. I know someone who actually says he doesn’t save for retirement because he’ll never be able to afford to retire anyway. He’s just joking — I think. Anyway, suppose instead we look at your budget. We find a way to carve a couple hundred a month out of that $30, 000 a year for retirement savings. For now, we don’t worry about how far that will get you in the long run. The important thing is that you have made a start, and when you get a little closer to the destination, starting to fill in the details will make more sense.
  3. Analysis paralysis. The other thing about retirement planning is that you can get caught up in the details involved. How do you figure out what you will be earning in ten years, or what inflation will be over the next 30 years? There are several similarly difficult assumptions to make in order to put together a retirement plan, and the problem is some people get so caught up in trying to formulate the perfect plan that they delay getting started. You are better off just making some big-picture guesses and then adjusting your assumptions as the answers become clearer.
  4. The deception of long projections. One reason not to get too caught up in your assumptions up front is that any slight inaccuracy is going to become magnified over the time frame involved in retirement planning. And inaccuracies are often more than slight. Who knew that savings account rates were going to drop to nearly zero or that we would see two major bear markets within the first decade of this century? Those developments have made a mockery of some very well-thought-out retirement plans, so understand going in that this is largely an exercise in guesswork.
  5. Adapt and survive. Not obsessing about planning does not mean blithely going through your career unconcerned with retirement saving. Start early, do the best you can, and take stock of where you are now and again. Just don’t go into it thinking that a good plan will see you through the next 40 years. There will be surprises and, even if those surprises shoot holes in your original plan, don’t give up and think your efforts were for naught. Keep yourself open to adapting to survive.

Ultimately, none of the above should discourage you from making plans, but they are simply reasons not to get too attached to your plans. After all, any plan is just a vehicle to get you to your destination, so don’t mistake the plan itself for that destination. You should not wait for the perfect vehicle in order to get on your way, and neither should you refuse to dump your current vehicle if a better one becomes available.

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