Planning and Uncertainty About Finance

Benjamin Franklin once wrote, “Tis impossible to be sure of any thing but Death and Taxes.” But even death and taxes are uncertain enough to present significant financial planning challenges.

Unfortunately, it is quite easy to conclude that financial planning is a waste of time because no one can know the future. But we do know that we’ll need to set something aside for the future, we won’t earn wages out entire life, and prices will probably continue to inflate. The only other crucial assumption we need to make in financial planning is that every other assumption we make is wrong.

Let’s face it, managing our finances and making important money decisions involve making a lot assumptions:

  • How much will I save? Spend?
  • How much money will I be making? For how long?
  • How much will I need for emergencies?
  • Should I buy or rent?
  • What if I need to move for work?
  • How much should I invest? Keep in cash?
  • How much money will I need to retire?
  • Inflation?
  • When will I retire? Will that be in a bull or bear market?
  • How much risk should I take?
  • What will the markets return?
  • How much insurance do I need?
  • How much will healthcare cost?
  • What will my future tax liability be?
  • How long will I live?

Just about everything about financial planning is uncertain, but some of these uncertainties become less uncertain overtime. As we get closer to future events, often the very same events that we’re planning for, the range of possibilities becomes narrower because we will have more information available. And at some point, we will have our certain answer, but by that point, is is usually too late to have done anything different before we knowing better.