Your Financial Plan is a Compass, Not a Map

When working with new clients at our firm, one of the biggest misconceptions we immediately dispel is that a financial plan will be some hundred-page leatherbound tome. Even just a mental image of such an elaborate document implies a degree of precision and permanence that is neither possible nor realistic.

Don’t get me wrong, a lot of effort goes into our financial plans. We aren’t out here operating off rules of thumb. We personalize all of the advice we give. However, we strive to give our clients something that functions more like a compass than a map.

An excerpt from Seth Godin’s blog will help me explain what I mean:

“A Ghurka rifleman escaped from a Japanese prison in south Burma and walked six hundred miles alone through the jungles to freedom. The journey took him five months, but he never asked the way and he never lost the way. For one thing he could not speak Burmese and for another he regarded all Burmese as traitors. He used a map and when he reached India he showed it to the Intelligence officers, who wanted to know all about his odyssey. Marked in pencil were all the turns he had taken, all the roads and trail forks he has passed, all the rivers he had crossed. It had served him well, that map. The Intelligence officers did not find it so useful. It was a street map of London.

Happy endings come from an understanding of the compass, not the presence of a useful map. If you’ve got the wrong map, the right compass will get you home if you know how to use it.”

Within that story is an often neglected truth about financial planning: the plan will be wrong.

At times during our process, we are very likely to have the, “wrong map”, Godin alludes to. By this I mean that at least some of our assumptions, assertions, and variables will change over time. Sometimes reality will be close to what we projected, and sometimes it won’t be. The details of a financial plan will be in constant flux, but that doesn’t necessarily mean we are lost. It simply means that we need to make adjustments and update the information.

But there’s a bigger concept here: we don’t create a financial plan to tell us to the decimal place what to do with our money. We create a financial plan to give our money a purpose.

The purpose that we define during the planning process serves as our compass. It explains the tactics we will use to fulfill our overall strategy. It gives us the necessary context to decide whether or not something makes sense. It provides us with a “why”.

The underlying principles of a financial plan are what help us know whether we are heading in the right direction. The digits and decimal places matter too, but they are transient.

If you enjoy leatherbound books and the scent of rich mahogany, like Ron Burgundy, that’s fine. Just remember that a dense financial plan wrapped in leather isn’t any more correct or permanent than something less complex. If peace of mind is what you are in search of, I recommend focusing your time on “understanding the compass”.