In the most simplistic definition, a bridge is a passage over obstacles providing an easier way to get from point A to point B. The planning and construction of a bridge being built reminds me a lot of a financial plan. Sometimes our finances can be hard to understand, but if you can logically relate to something, like a bridge and your finances, maybe it can create a better understanding how to get between point A and point B. Where point A is today and point B is your next goal in life. As life goes, there isn’t just one goal or situation, so building small bridges to connect each goal is a prudent approach. The obvious end goal is to reach retirement. A financial plan takes into consideration all life’s transitions and each goal to get you to financial freedom.
A bridge isn’t built to withstand only vehicles or trains. It also must test the battles of mother nature. Like a financial plan, there is more than just withstanding market fluctuations with your investments. Events will happen throughout life, planned and unplanned. As life events unfold, certain parts of the plan will also need to be updated. Some things can be easier to plan for than others, such as getting married, having kids, buying a home, and aging. Each of these goals can require its own small bridge to be built.
A lot of legwork goes into planning the construction of a bridge. It can’t be built without determining the type of structure, traffic, weather, type of land, and more. A financial plan also requires legwork to determine the most beneficial way to develop your financial bridge. Many people put off a financial plan because it does take a considerable amount of time to get organized in the beginning. But at some point, it must be done if you are serious about saving for today and having financial freedom in the future. The sooner you start the foundation of your bridge, the easier it will be to create, implement, and eventually maintain. The foundation is the support system that will allow for the construction of the plan.
Break ground. Now you have a clear understanding of your financial situation and goals you want to accomplish. As you begin constructing the plan, you’ll start to see value of your living financial plan. It takes many different materials for a bridge to be constructed, from concrete to steel. You wont need concrete or steel, but you’ll weigh the need to diversify your tax exposure by accounts, allocation of short term/long term investments and debt management.
After a bridge is built, it’s not just ready for traffic. It needs to be tested to ensure it can hold up in action. When your financial plan is constructed, it will need to be stress tested to make sure you understand the type of risk the plan can handle under different scenarios and economic environments. A bridge isn’t built for a 4000 lb. vehicle rating and hope a 10,000 lb. truck doesn’t come rolling through. Don’t build your investments by hoping a negative event won’t happen. A portfolio shouldn’t be built with anticipation of no volatility or market drawdowns. A portfolio within a financial plan should be built for you to emotionally withstand various market environments. Always stress test.
The bridge is open for traffic. Your financial plan can be implemented and put to work. You are now able to see the value it will provide you in the future. You understand the plan, how it will work, and how adjustments can be made when a new goal comes up or as goals are successfully completed. Even if an unforeseen event happens, you can be more financially prepared. An ‘under the radar’ value of a financial plan is that it makes unplanned events less financially stressful.
One of the main reasons for bridge failure is poor maintenance. How can your financial plan work at the best capacity if you don’t maintain it? Bridges can’t be built and forgotten about. They require regular inspections and upkeep. A financial plan will need its own kind of inspection, or monitoring. It’s always good to inspect your plan annually and determine if adjustments are needed based on your goals, changes in life, and if the plan is still on track to meet your goals. An annual inspection of your financial plan doesn’t mean changes have to be made, but it’s necessary to keep a good understanding of where your plan is at regarding your life goals.
Now go build your financial bridge. Talk to us about your financial plan. Life is busy and financial decisions are easy to put off.