I’m a Certified Financial Planner with a bachelor’s degree in finance and accounting from the number-one entrepreneurship college in the country. I have more than two decades of experience in the financial planning industry. I run a wealth management firm that has helps hundreds, if not thousands, of people use their money as a tool to build the life they want to live.
And I will be the first person to tell you that only using spreadsheets and math formulas to figure out your financial plan is a short-sighted, irresponsible way to decide what to do with your money.
Sound crazy? Then let me explain.
Numbers Around Money Need Context
When people see a spreadsheet that says their plan “works,” without considering the real-life context those numbers have to work within, they set themselves up for failure.
For one, any spreadsheet, projection, or formula result is only as good as the numbers you put into it.
Maybe that data is accurate. But more often than not, we find inaccuracies in the numbers when clients bring us their math “homework” prove they can jump into a financial decision that we feel would put them out over their skis.
This usually happens because people plug in information like it’s a fact when it’s more of an assumption.
People also tend to put too much faith into the numbers, because they feel so solid, so objective. But numbers can be subtly tweaked or influenced to tell the story you want to hear. Our own biases, often subconcious, can lead us to turn a blind eye to some of the facts that we’d rather not account for.
Two, and perhaps more importantly: money isn’t just a math problem that you can easily solve.
Yes, there’s math at play here. There are formulas to use to understand long-term projections, returns, and so on. These are important — but only trying to math out your financial plan strips away so much critical context.
Real Life Happens Outside Of Spreadsheets And Formulas
Too often we think we can just plug numbers into a formula and rely on the answer that it generates, but that leaves out a lot of variables that often matter more than the baseline numbers.
We need to consider certain realities alongside the math problems we’re working to solve to get to the best solution to the question of “how do I use my money to maximize its value — and my own financial security and success?”
The context we need to make money decisions within includes variables like:
- Most things with money require very long time horizons, but we’re human beings who have to live our lives day to day
- It also requires consistency over the long-term – and people tend to get bored or distracted, and are tempted by the allure of new, novel, and different along the way
- Money drives extreme emotional reactions in people, which influences how we behave
- Life is unpredictable and the future is uncertain; the only thing we can guarantee is that things will change
So if you can’t just rely on a spreadsheet or basic math to solve your money problems and answer questions about what to do next, what do we, as financial planners, consider instead?
Here’s the high-level of what we look at when we’re building out financial plans that actually work, and that people can stick to over time.
1. Get Grounded In The Current Financial Reality
The numbers aren’t everything… but they don’t lie, either. We have to look at the facts (while removing as many assumptions as possible) as they stand today, and compare that to where you want to be in the future.
Respecting what the numbers say about right now is an important starting point. The numbers can tell you things like:
- If you’re saving too little
- …or if you’re spending too much
- If you are behind on your account balances and net worth for your age
- If you’re tracking to retire when you want
- If you can afford your most important goals or if something needs to change
- If you’re taking the appropriate amount of risk in your portfolio (there is such a thing as “too much” and “too little”)
This is different than taking those numbers, running them through a spreadsheet, and generating a long-term projection that we take as gospel.
Those long-term projections are often what get people in trouble and why we advise against relying solely on a spreadsheet for financial answers… especially when we’e talking about time spans of decades.
The longer the time horizon between now and your assumed outcome, the more noise and variance you introduce into the picture. Life is not linear; luck and randomness play a massive role in any end result.
You need to consider the actual workings of your day-to-day life and consider an action plan that you can actually implement within that framework.
Once we know the state of your financial health today, we can do things like:
- Address any major issues or must-fix-now problems
- Establish a priority order for the actions you need to take to achieve your goals
- Reverse engineer a strategy to connect where you stand right now and where you want to be tomorrow
- Identify the work you need to do to move forward and grow wealth
The “work” is all of the tiny steps and actions you take, day after day, that when you stick with consistently, add up to a massive result over time — so long as you’re frequently checking in with your progress and consistently replacing any assumptions you made in your initial strategy with what actually happened or is happening, and iterating on the plan as needed based on those facts.
Those iterations are key to keeping things on track. One little deviation from the path you need to follow, if not caught and corrected, will leave you miles off course in the future.
Periodically and methodically reviewing and tweaking your plan and strategy is what makes financial planning a process, not a one-time, set-it-and-forget-it event.
We do this with the understanding that, again, things will change and evolve. We have to build a plan that includes buffer room and contingencies to account for the things we don’t see coming (but will definitely show up!).
2. Add The Context Of Your Everyday Life That You Experience Once Day At A Time
You have to add color and context to your financial plan that reflects the fact that your financial decisions are made with the long-term in mind… but that you actually have to live your life in the day-to-day moments, every day.
That’s what makes financial planning a massive challenge:
Present-day You has to act in the best interest of yourself right now, as well as someone you don’t know at all and doesn’t exist yet: future You.
That means any action plan we create needs to be sustainable, so that you can stick with it even when you won’t see the real results for years or even decades.
Spreadsheets can lead you wildly astray here. For example: yes, there is very simple math to help you see that if you only saved 70% of your income for the next 10 years, you could retire in your 30s or 40s…
But that completely strips away the context of how you would have to live your life for ten years to save that much of what you make.
Instead, you need strategies that will benefit you now and into the future. You need to identify actions that will move the needle – without compromising the life you want to live today.
If we continue on with the savings rate example, this is exactly why some of the most common advice we give to our financial planning clients is to save between 25 and 30% of their incomes.
That’s still a significant amount, and allows for a retirement age around 60 – earlier than most, while still providing plenty of cash flow in your working years to actually enjoy what’s most important to you now.
3. Deal With The Emotional Challenges Inherent To (Good) Money Management
Money is about so much more than math. It creates sharp emotional reactions in everyone, and you need a stategy to manage that as you manage your money.
There is a lot of emotion tied up in the effort to align your money, your time, and your energy in a way that allows you to get more of what you want.
It can’t be said enough: most steps to financial success take not just weeks or months but years. But being able to stick with the same action over and over again is (a) hard, (b) boring, and (c) not always realistic.
A spreadsheet showing perfectly average, linear progress is destined to fail the moment you hit a bump in the road, whatever that bump may be for you.
This is a big reason why a good financial plan should come with buffer room and factor in periods of time where you may veer off course — times when:
You may not save as much as you should (or anything at all).
You may face a loss of income.
You may simply make a costly mistake that takes time to recover from.
That’s real life, and a good money management strategy should account for that.
Making money decisions that actually work in real life requires a lot more complexity than simply putting numbers into a spreadsheet or calculator.
Those are useful tools and we certainly use them in our work – but they’re only one part of the process.
Your life is complex and dynamic, and can’t be reduced down to a math problem. Make sure your plans for money management account for that reality.
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