Building Wealth for the Things You Cannot Predict

A good financial plan should help answer the big questions.

• When can I stop work?

• How much will I need?

• Can I afford to help the children?

• Will I have enough if markets are difficult?

• What happens if life does not go exactly to plan?

  
  

When we build financial plans for clients, we include as much as we reasonably can.

We can also include the things that might happen. These could be higher care costs, helping children, supporting wider family, health issues, or needing to spend more in the early years of retirement.

But there is another category that is harder to plan for, and that's the things we do not know are coming.

Life Does Not Follow a Spreadsheet

Financial planning is incredibly useful, but life does not always follow the neat lines on a cashflow chart.

The plan might show that you are on track, and it might show that you can retire at a certain age, spend a certain amount, and leave a certain amount behind.

That is helpful, but it is still only a model of the future, and it is based on assumptions, and assumptions are never perfect.

Life changes, families change, health changes and priorities change. Also, as we all know, the world also changes!

This is why I think it is important not to view a financial plan as simply a calculation that tells you when you have “enough”. As enough for what you know about today is one thing, but enough for the things you cannot yet see is another.

Why Building Extra Wealth Can Matter

There can be a temptation, once a plan looks comfortable, to stop there. If the projection shows that you are on track, it might feel as though there is no need to keep saving, investing, or allowing wealth to grow. In some cases, that may be absolutely fine, but you should be careful about assuming that the plan has captured everything life may throw at you.

One of the reasons for continuing to build wealth is not because money is the goal in itself.

It is because additional wealth can give you more choice.

• It can give you options if something unexpected happens.

• It can provide a margin of safety.

• It can help you support family.

• It can give you more flexibility if your plans change.

And if you never need that extra money during your lifetime, it may allow you to pass more on to family or to causes that matter to you.

The Unknowns We See in Real Life

Some unexpected events are more common than people might think. Adult children may need financial support because of divorce, illness, job loss, or difficulties buying a home.

Parents or other relatives may need help.

Health issues can bring additional costs, even when good planning has already been done.

Plans for retirement can change because one partner wants to stop work earlier, reduce hours, or spend more time with family.

A home might need adapted. A family business may need support. A child or grandchild may need help at a time when nobody expected it.

None of these things can be predicted with certainty, but they are good reminders that the future is rarely as tidy as the plan suggests.

Investing Beyond the Plan

This is one of the reasons I believe long-term investing still has an important role, even when the plan already looks comfortable.

The purpose is not to chase returns for the sake of it. The purpose is to protect choice.

A well-diversified investment portfolio gives your money the opportunity to grow over time.

Of course, investments will rise and fall in value. There will be difficult periods. There will be times when markets feel uncomfortable.

But over the long term, investment growth can be one of the most effective ways of building a margin of safety into your financial life.

That margin of safety can be valuable, not because you know exactly what it will be used for, but because you do not.

Planning for What Cannot Be Planned

You cannot build a plan for every possible event, but you can build a plan that is flexible enough to cope with change. That means having enough cash for short-term needs, an investment strategy that matches your objectives, suitable protection where needed, and a clear understanding of how different decisions affect your future.

It also means reviewing the plan regularly, and that's not because the plan is wrong, but because life moves on.

A financial plan should not be a fixed document that sits in a drawer. It should be a guide that helps you make better decisions as life changes.

A Useful Way to Think About Wealth

Morgan Housel, the financial writer, once described saving as protection against life’s ability to surprise you at the worst possible moment, and I think that is a helpful way to look at it.

Building wealth is not just about reaching a number, it is about creating resilience and giving yourself and your family more options.

It is about knowing that if life does take an unexpected turn, you have more flexibility to deal with it.

That is why financial planning should not only focus on the life you expect.

It should also leave room for the life you cannot predict.

The value of investments and any income from them can fall as well as rise. You may not get back the full amount invested.

This article is for general information only and does not constitute financial advice, which should be based on individual circumstances.