Ep #8: Accepting The Certainty of Uncertainty
In this episode, we discuss why it's important to prepare for the worst with the help of a financial planner.
- Have those uncomfortable conversations
- Conduct scenario planning with us to see how the end result may look
- Gain financial confidence knowing that you've made rational decisions now
You can also watch the full video on YouTube:
Benjamin Haas 00:03
Hi everyone and welcome to A/B Conversations where we will help you CFP® your way out of it. A podcast where you get into the minds of a couple of Certified Financial Planners™ on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts...now!
Adam Werner 00:35
Pulling the curtain back letting people know when we record these things.
Benjamin Haas 00:38
Yes, it's Friday at 10:36.
Adam Werner 00:44
Early enough.
Benjamin Haas 00:45
That's right.
Adam Werner 00:46
All right. So today we started out with a topic of the certainty of uncertainty and then the more we kind of talked about that in preparation for today, it morphed a little bit into financial planning. How does that apply? We have these conversations trying to plan for the certainty of uncertainty and just what that means to us from a planning perspective. We talked a little bit about the math side of financial planning, being kind of the typical thought of what we do, when we now try to educate that it really is more of the conversations, let's walk through all these different scenarios. The math we will have in our back pocket to help facilitate what that actual advice is but having that conversation is really the key.
Benjamin Haas 01:45
I think it is kind of like a misconception that financial planning is just a bunch of math. How much do I have to save? What are my expenses? You know, calculate projections. We like to think we can kick butt with a HP 12-c financial calculator and a couple spreadsheets but planning is far more about considering different scenarios. We use that a lot when we are planning for different scenarios because the reality is no one knows what the future brings. We have to make reasonable assumptions on how things will go. The only sure things in life are taxes and dying. Let's use that as a launching off point. I think the trouble is, most people in our experience this where I'd like maybe your take, most people instinctively probably avoid those conversations about uncertainty because the conversation kind of morphs from things that like feel like they're known and comfortable and quantifiable (math) into things that you hope aren't even likely.
Adam Werner 03:06
We would love for all of the conversations to be what do I need to do to buy a vacation home? What do I need to do to buy that boat but it really is the, maybe not necessarily uncomfortable but it's the downer conversations of God forbid, what happens if I pass away prematurely or I can't go to work tomorrow because I'm disabled? What happens if I lose my job? It's those conversations that I don't think people really look at. We know they don't look forward to and they're not always the easiest conversations. What we found is having those conversations in advance, allows you to set a plan that if something should occur, you at least have some of your options laid out that in that time again, God forbid something happens that's a stressful time that you at least have some course of action or at least a plan to go back to.
Benjamin Haas 04:06
Yes of course, there's certain things in life, myself included, we probably try to kid ourselves into thinking that they just won't happen, maybe because they're not statistically likely. You mentioned some of the worst but it can be that car accident, it can be I was furloughed from work in the middle of a pandemic for a couple weeks. It doesn't have to be that God forbid but we can't get ourselves into the Superman complex that says, I'm just going to avoid talking about it and therefore it won't happen. Well, that's not the way that life goes but I would take that one step further and I think we're experiencing this a little bit more frequently, too. I know I am but trying to deny that difficult situations won't happen probably leads to discomfort and stress. I see this so often, even with some family and friends, when big decisions need to be made that lack of preparation can turn into fear of the unknown, that leads to worry, worry about the worry. It's just not healthy. I think we need to do a good job bringing to the forefront in this conversation that financial planning isn't just math, it's accepting the certainty of uncertainty and then having tough conversations. It is not only to prepare as you said and have a plan for those if they happen but it's to give you a healthier mental framework that if these things do happen, you haven't avoided it, you haven't stressed yourself out, you now have some options.
Adam Werner 05:45
Just to build off of that part, we often see in different scenarios where if you're able to plan in advance or at least have the conversation in advance, you can retain some of that flexibility or some of those options by planning in advance. Where you go down that road of, I'm just going to ignore it and hope it never happens. Then if it does, oftentimes, once something has happened and you haven't planned for it, that flexibility and those multiple options usually are not there. You're stuck now dealing with it from a reactionary standpoint and that usually is a lot tougher.
Benjamin Haas 06:28
We'll use some examples. Have you ever gotten a phone call, the unfortunate phone call, when someone has to call and say their spouse passed away? And they go, I'm so angry that we talked about life insurance and that I have this death benefit coming to me. It takes an emotional travesty and sometimes make sure that because you had that conversation it didn't turn into a financial travesty. It can be the same way with Okay, I'm furloughed from work and thinks this is a crappy situation but by the way, you've got six to 12 months of your paychecks sitting in a cash reserve to carry you through. Don't let this emotional travesty become a financial one. I just think it's so important to not only have a planning process, but to mental health, to know that you are prepared for the worst and hoping for the best.
Adam Werner 07:22
Oh yeah, there's absolutely the peace of mind that we hope someone would get from that. Again, even thinking about it from that negative standpoint of the bad what ifs but just knowing that if something like that should occur, that you at least have, again, that plan to go into it to make the best of a bad situation.
Benjamin Haas 07:47
Let's move from the bad situations to accepting the certainty of uncertainty and in the good situations too. I don't know what's going to happen with the election so I'll sell everything. We've talked about not doing that but then take that same frame of mind, I don't know what I'm going to do with my time when I retire. I'll just keep working in a job that's not good for me anymore. That's not a good way to go about it either so accept the fact that you can't know what this next phase of life will bring you but let's talk about scenario planning. Let's do this model need to go well, what kind of income should I still make to fill the gap? What if I take Social Security early versus waiting? What if I do this with my pension? What if I do this? That's scenario planning even though it's uncertain variables, does give you the ability to kind of see how the end result may look and go. Well, I know I don't want to go down that path, then. You're funneling down your options and I think that's a really healthy way to go about things too.
Adam Werner 08:46
It does speak to the way that we approach financial planning, again, is the conversational side of things and that certainly doesn't have to be the negative to your comment there. It is really just providing the space to figure out to your point, what paths do I know I don't want to go down as an option. Then I have these other ones over here that do feel okay and you start to narrow down what is comfortable. Again, it's peace of mind knowing that you've had that conversation, you have some thought of what's coming down the road or where you want to go and I think I would hope that's a powerful tool.
Benjamin Haas 09:29
I think that preparation to your point. I want to think of that as the ability to ensure that your values are literally put into action when life throws you that curveball. That your rational brain is still access and you're not making some kind of ill-conceived emotionally driven decision that may not be what's best for you. I think you hit on my points. Is there anything else you had on the certainty of uncertainty.
Adam Werner 10:00
I don't think so.
Benjamin Haas 10:03
Here's what I heard. Here are the main points we need to prepare for things. Even if that means talking about uncomfortable situations because preparing for life's predictably unpredictable outcomes not only is it minimizing stress hopefully and the damage that that can cause, but it does keep you and your values aligned. If something does come your way that you weren't looking to see happen and your point, it gives you options. You have prepared for different scenarios so that when that comes, you know the risk is of it, turning from an emotional travesty into a financial one to go down. As planners, we'd say that is far more what financial planning is all about, scenario planning, even if it's accepting the certainty of uncertainty than it is about the math.
Adam Werner 10:56
Yep, well said.
Benjamin Haas 10:59
Thanks again.
Adam Werner 11:00
All right.
Benjamin Haas 11:01
See you next time around. Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you. Consult with your attorney, your accountant and financial advisor or tax advisor prior to making any decisions on investing. Thanks for listening!
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