How To Improve Your Financial Plan To Fit Your Life
We live in an “up and to the right” kind of world. We think in linear terms, as if our life is a chart where the trend line is always moving up and to the right. We feel like everything should constantly be improving; if we aren’t growing we are dying. This thought process is everywhere.
The problem with this way of thinking is that it isn’t the natural order of things. This is Industrial Age thinking which is best applied to manufacturing tasks. It makes sense in that context.
The Industrial Age attempted to engineer a world where the ups and downs are removed. But nature has a way of prevailing. Everything moves in cycles. Your life, your business, economies, seasons, the world, and just about anything you can think of.
It’s likely that your financial plan has been built on this same linear thinking. Most financial products are sold as if your life can be reduced to a math equation. — Save $100 per week, invested at 10% for 30 years = retirement. You job is to execute your plan as precisely as the math equation. At the same time, the world is changing rapidly. All of those factors that you based your linear financial plan on are up in the air.
Not only is the world changing, but likely you are too. You are reacting to what is going on in the world, and how all of it is effecting you. There are also natural cycles that your life goes through that impact your financial plan. That career you chose when you were 20, may no longer fit the person you have become, or the one you want to be. It served its purpose in your life, but now it is time for a new season. If you are stuck thinking linearly, how do you step off the path you have been on without feeling like you are stepping back? But if you think in terms of seasons or cycles, it is easier to say that the season you have been in has taken it’s course and it is time for a new season.
It may take some exploration to figure out what is next. Reinventing your life, or what you thought your future would be is hard. It may take some experimentation and time. It may be a time that requires that you focus on investing in yourself rather than retirement. Historically we have only thought about investing in education prior to starting a career. But you may start several careers in your lifetime. Each may require more education. Adopting the mindset of a life long learner could be the best investment you make. The education doesn’t have to be through a formal system. New skills and knowledge can be acquired in whatever way suits you.
What if you viewed retirement differently as well? The linear model is challenged. If you work at the same job for 40 years and they provide you with a guaranteed pension for your lifetime, it might be doable. But is that what you really want? Is it even possible anymore? Retirement is an appealing enticement to get you to do a job you hate. One of the reasons it was invented……..in the Industrial Age……was this very reason. The jobs were difficult, stressful and/or boring. The promise of a pension kept people doing those jobs. Fewer people are willing to make this trade now.
What if you embraced the idea of work cycles? Engaging in work projects for periods of time followed by a sabbatical. More people are working in this pattern and I think this trend will continue. This cycle will require a cyclical financial plan.
What would a cyclical financial plan look like? A much higher savings rate in the periods of work. Ideally I would have people focus more on building passive income to carry them through the slower times. It would require a whole new way of thinking. But if your life and work do go through cycles, doesn’t it make sense to recognize this and have your plan reflect it as well?
This article originally appeared at maryellenmiller.com