Financial plans involve significant time and effort to create—for both you and your financial advisor. And even with careful planning and research, the one certainty in financial planning is that your financial plan will not play out as projected.

This is for several reasons, one being the use of plan assumptions that will naturally differ from reality. Some examples include:

• Inflation and interest rates - it is nearly impossible for this to be the same each year over your lifetime.
• Investment returns - will rarely ever be consistent or predictable over long-term timeframes.
• Spending - will naturally vary each year, as prices and your needs change.
• Taxes - tax rates and regimes are subject to change.
• Regulations - the way in which registered accounts and pension programs operate can vary as governments, economics and national demographics change over time.
• Life expectancy - it is highly unlikely that you will pass away exactly when projected.

You will also deviate from the modeling in your plan due to changes in life circumstances, including (but not limited to):

• Changes in your household - marriage, divorce, children, pets, and taking care of other family members can increase or decrease available assets, debts, incomes and expenses.
• Major purchases and expenses - items like renovations, major appliance replacements and vehicle replacements (among other things) can vary in terms of both cost and timing.
• Changes in occupation/employment - you could get promoted, experience a layoff, change industries, enter or exit the workforce, become self-employed or sell your business.

Many of these items are difficult to foresee—especially when projecting out for 10 years or more. But just because you cannot predict the future does not mean there is no value in the exercise. Having a financial plan can actually help you prepare for the unexpected. 

Also, this does not diminish the need to be as accurate as possible. The objective is not to be exactly correct, but instead, to be the least wrong.

Even if a plan is not fully accurate, it is still far more likely to bring you closer to achieving your goals than having no plan at all. Think of the major events in your life, such as planning a wedding, buying a vehicle, attending post-secondary education, getting a driver’s license, or starting a business.

When attempting any of the above, think of the difference planning or doing some research beforehand makes compared to showing up with no preparation. When faced with the above events, most people would do some combination of the following:

• Learn the basic rules and regulations of what you are attempting.
• Have a conversation with someone who has done it before (or better yet, an expert in the field).
• Set goals (or success criteria) for the activity and the available methods to achieve them.
• Understand the risks you may face in the endeavour and how to mitigate them.

Now consider why you would not do the same for your finances as the following are likely as important (if not more so) than the above:

• Having enough money to be able to live your desired lifestyle both now and in the future
• Making sure your loved ones are taken care of should something happen to you
• Making sure you are prepared for financial emergencies that could come your way
• Being able to enjoy any opportunities that come your way in life and avoid preventable sacrifices/concessions

While your financial plan may not be perfect, it can still have tremendous value for you and your loved ones. By updating your plan regularly (and whenever there are major changes in your life) you can keep your plan as close as possible to reality—and be as “less wrong” as possible.