Capital InsightsFinancial Planning

Freedom and Financial Planning

One of the great traps of the information age is the wealth of data at our fingertips. It stands to reason that with more quality data, we’ll be better informed, make stronger decisions, and be happier.

However, we are slowly coming to terms with what author Barry Schwartz termed the “paradox of choice” – too many choices, too much information, and too many decisions have made us less happy, not more. In fact, faced with a greater number of options and more possibility, we often opt out of making a decision entirely.

Even the simplest decisions can lead us down a rabbit hole searching for the “best” lawn mower, how to make the “best” pie crust, or find the “best” coffee in town.

Gran Vía, Madrid, Spain

Just before the pandemic, my wife, Caroline, and I were traveling in Spain. We had a free evening in Madrid with no plans, so I started the search for somewhere “great” to eat. Ten minutes scouring Yelp reviews led to further research based on cuisine, atmosphere, drink menu, and suddenly an hour had evaporated. I had a list of some potential spots but was no closer to a decision than before.

As I juggled wait times, walking distance, and proximity to “other stuff,” what had started as a fun exercise had morphed into a project with a rapidly approaching deadline. Caroline let me flounder around while she caught up on emails, checked in on the kids, and read a bit. Finally, after watching me slowly drown in a sea of possibility, she cut in and said, “why don’t we just walk out and find somewhere that looks good?” Of course. Why didn’t I think of that?

I thought I wanted data and analysis that would lead us to the perfect spot, but what actually made us happy was the freedom to ignore the information overload, drop the silly quest for the perfect option, and walk out the door and find somewhere that looked good.

Every day, we are bombarded with information and decision points in our financial lives — Interest rates, market volatility, credit card rewards, college costs, Social Security decisions, 401(k) and investment choices, to name a few. When faced with decisions involving dollars (real dollars, not just a dinner for two in Madrid), it’s easy to miss the forest for the trees. There’s a never-ending stream of information and advice available online and from friends and family. While most of it is well-intentioned, and some of it quite sound, it lacks context.

That context is you. The concrete stuff, like income and expenses, savings and debt, your job and your family, plus your goals, preferences, habits, risk tolerance, and values.

A proper financial plan gathers the relevant concrete data and then frames it through your goals and values to give you a clear view of where things stand currently, where you’re headed, and how to get where you want to go.

The plan should give you a clear understanding of how much market volatility your portfolio can endure without changing your trajectory. It will tell you the amount you can spend without jeopardizing your future. You’ll know how much you should put away regularly to be in position to retire when you want, pay for college, or meet your other goals.

In short, a comprehensive financial plan provides clarity around what needs to be done, and what is possible. It gives you the roadmap to stay disciplined and maintain your course, and a checklist to achieve your goals.

The plan will prescribe guardrails around spending, saving, and risk. While these can feel like limits, they actually provide a great deal of freedom.

The freedom to ignore the noise and focus your attention on the things that are most important to you. The freedom to disregard short-term market volatility (or use it to your advantage) and maintain a long-term focus. The ability to opt out of the cycle of boom-and-bust mistakes so many investors make. A plan is a roadmap that frees you from comparing yourself to friends, neighbors, or online influencers, and allows you to ignore the 24-hour financial news cycle.

A proper financial plan also gives you back your time, for it frames important decisions within your context. You can avoid countless hours of analysis paralysis, chasing the shiny new things, or pining for the next perfect strategy.

In the end, a comprehensive plan that is properly implemented and updated regularly should ultimately provide you the financial flexibility later in life to spend your hours and dollars on the things that matter most.