How to Develop a More Dynamic, Futureproof Financial Plan

When you make a financial plan, it might be outdated the moment you put it on paper.

That’s because change is inevitable. In fact, it’s the only constant you can rely on. Still, resistance to (or even denial of) change seems like a part of human nature—especially when things are going well.

Who wants to sit around thinking of all that could change and go wrong tomorrow when life looks really great today?

But if you want to maintain the great position you find yourself in now, you—and your financial planning—have to account for the reality that life is unpredictable.

Not to mention, not all change is bad! You could get an amazing opportunity, but unless you’re flexible and adaptable enough to capitalize on it, it could pass you by.

To both protect against downside risk and maximize advantages and opportunities, you need to make a financial plan that can withstand the inevitable changes that will happen over the course of the next 10 to 30 years of your life.

Here are a few strategies that will help you do just that.

Acknowledge that It’s Not Just Life That Changes. You Do, Too

Change is not just something that happens in the world around us. It happens within us, too.

Our goals, interests, and even our identities evolve over time (especially if you’re someone who values growth, learning, experiences, and progress).

This natural progression can make long-term planning challenging given that you can be completely earnest, sincere, and confident about your goals as they stand today…

…and still find yourself in a position where, 5 or 10 years down the road, the things you wanted in the past aren’t at all what you want in the present.

Any plan you create must be more of a system, and that system needs to have optionality built into it.

You need multiple levers to pull. You have to identify contingencies and be ready to deploy them. You need to be not just willing to adapt but actually able to pivot as needed.

You will be in a better position to succeed if you go into any financial planning process understanding that:

• Planning should be iterative; it’s not a one-time event but rather something you continually engage with over time as you gain experiences and uncover new facts that can replace your previous assumptions.
• Proactivity will help you maintain great positioning. It’s always better to take action on your terms (rather than waiting until something happens, and being forced to react defensively).
• Establish practices and habits that are sustainable—things you can maintain over time. If the only way to achieve a goal is doing something extreme for a long period of time, your probability of success is going to plummet.

Don’t assume Future You will be exactly like Present You. That runs the risk of locking in decisions that could limit your options down the road.

Avoid Living at Extremes with Your Cash Flow

A good financial plan avoids setting up scenarios where you’re living at an extreme. It’s rarely a good idea to borrow the maximum the bank will allow you to take to buy a house, car, etc.

It’s equally ill-advised to save the minimum amount a spreadsheet says you can get away with to hit your long-term goals.

There are very few instances where maxing out what your cash flow can handle on paper is going to work out well.

You can get away with it in the short-term (if you get lucky), but it’s not a sustainable practice to try long-term.

One of the biggest reasons why is that removing fixed costs, like a mortgage, from your budget can be a painful, messy, slow process.

And when you’re not redlining your cash flow all the time, you can better adjust to whatever change comes your way.

That includes positive change!

Perhaps it’s an opportunity that came along that you didn’t expect, or an experience that leads you to think differently about goals and values.

It’s not that change is inherently bad or negative. But it does require adaptability if you want to take full advantage.

Translated into “how to better manage your money,” that means building buffer room into your financial plan.

Create space for uncertainty now, before something disruptive happens.

Take Only the Risks Necessary to Meet Your Goals (Be Especially Wary of This If You Have Equity Compensation)

A piece of advice we find ourselves preaching a lot is to avoid making oversized bets—whether that’s investing too heavily in a single stock, committing to a mortgage that stretches your budget, or putting all your savings into a rigid retirement plan.

We see this most often in the investment realm, especially when trying to manage equity compensation.

Without a strategy or system, grants of equity comp received from your employer can easily build up into a more-risky concentrated position.

That opens you up to unnecessary volatility, and puts more of your net worth at risk than you actually need to open up to loss.

Setting up a rules-based system to properly handle incoming grants and newly-vested shares ensures that you both capture the upside advantages of receiving equity (i.e., more income to you) and avoid risk that you don’t actually have to take in order to make out with a win.

For BYH clients with equity compensation, we typically recommend that they:

• Sell grants of equity, like RSUs, as they vest
• Set aside a certain percentage of the gross proceeds to cover the tax bill the sale generates
• Immediately reinvest the proceeds into a globally-diversified portfolio to ensure they’re avoiding the risk and volatility that comes with holding a concentrated position

For clients who are eligible, we will also help them set up 10b5-1 plans to help automate the process of regularly selling shares on a rules-based system that removes potential for human error – which is most often forgetting to sell vested shares or hesitating to do so for emotional reasons.

Of course, specific strategies for individual clients get more complex (which include bigger conversations around tax considerations depending on the type of equity involved; different types of equity mean different tax implications!).

We’re not against clients holding single stocks, and many do for various reasons. But the guideline we put around this, to help mitigate risk and avoid unnecessary losses, is to limit exposure to a single stock to no more than 5 percent of liquid net worth.

This way, the client can explore outside of our standard recommendation of a globally-diversified portfolio – but without taking on risk that they could not recover from.

Consider the “What Ifs” When You Make a Financial Plan

You can build a more robust, adaptable financial plan that better withstands change by looking at counterfactuals and “what if” scenarios.

Once you draft out an initial strategy that works on paper, you need to start stress-testing the assumptions you plugged in.

You can ask questions like:

• What if you lose your job? How realistic is it that you get another that is equally high-paying versus one that doesn’t provide as much compensation?
• What if you can no longer afford (or simply no longer want to spend money on) your biggest fixed costs currently in your budget?
• What if you decide to move to a different city? Across the country?
• What if your family situation changes? Is everyone protected in the event of a spousal split? What if someone were to pass away – would the surviving family members understand how to maintain their financial plan or who to go to help them?

You can also simply look at any assumption you’ve made, and ask, “what if I’m wrong?”

You want to answer these questions as honestly as you can and consider what that means if things don’t go your way, or if they just play out differently than you initially imagined.

A few more examples to get you thinking:

What if your expenses run higher than you thought? What if your projected income is lower in reality? What if you want to retire sooner (or even, later)? What if you can’t work when you thought you’d maintain your same career for 20 more years?

It’s not that you have to solve for every conceivable scenario; that would likely be impossible. But by poking and prodding at your first draft financial plan, you can likely uncover some easy-to-address risks and bridge major gaps to better protect yourself against a wider range of potential outcomes.

Spreadsheets or tools like a Monte Carlo analysis, in a vacuum, aren’t great at accurately reflecting all the messiness and ups and downs of life. Don't rely on these tools alone to come up with a plan and think you've got your ass(ets) covered.

By thinking through these scenarios and considering them from every angle you can think of, you can start to identify factors that could derail your written plan… which helps you come up with contingencies to protect against the downside risks you see.

Try Before You Buy: Test Drive Anything and Everything You Can

Before committing to major life changes—such as retiring early, moving to a new city, or starting a business—try to “test the waters” first.

While not always possible with every major life decision (think: having kids!), taking things for a test run whenever you can provides you an opportunity to gather more information and experiences before making a commitment that may be hard to undo later.

This could mean taking extended vacations in the city you’re considering moving to, working part-time before fully retiring, or starting a side business before leaving your full-time job.

By doing this, you can gain insight into whether these changes are truly what you want without locking yourself into a decision prematurely.

I also think about Jeff Bezos’ “one way vs. two way doors” framework for big decisions.

If you’re looking at a decision that you can easily walk back—it’s low-cost and low-effort to reverse the choice or go back to where you started—make that decision fast. It’s a two-way door that you can flow in and out of with relative ease.

But if it’s a decision where there is no going back, or going back means losing a significant amount of time, money, and energy, slow down and proceed with more caution.

That’s a one-way door and it is well worth making a small investment in researching, considering, trialing, and thinking hard about the choice before you make it.

Make a Financial Plan That Prioritizes Optionality, Flexibility, and Choice

When you make a financial plan, you must build in room for mistakes, errors, and miscalculations. You also have to account for bad luck.

Here are 5 tangible to-dos that help ensure your financial plan can handle whatever life throws at it:

1. Maintain an emergency fund or some kind of cash reserve that you can easily access. (Side note: this is not going to be iBonds given that the Treasury Department could take up to 12 months to get your money to you after you request it.)
2. Draft an emergency budget now, before you need it, so it’s ready to deploy immediately should you need to put it in place.
3. Keep expenses (MUCH) lower than you could technically afford, and create a gap between what you earn and what you spend.
4. Save more than you think you need. The minimum we recommend our clients save is 25 percent of their gross income.
5. Consider opening a line of credit against your assets as an additional safety net (again, a tactic we help our clients manage).

Ultimately, the best way to navigate the inevitable changes in life is to stay open-minded and embrace them as opportunities for growth. This means being willing to change your mind, adapt your plans, and explore new possibilities.

Regardless of your age or stage of life, staying adaptable and flexible in both your life and your financial planning is the key to thriving in an ever-changing world.

Change is the only constant in life, and successful financial planning requires acknowledging this reality.

By building flexibility into your financial plan, leaving room for adjustment, and staying open to new experiences and perspectives, you can create a strategy that not only withstands change but thrives on it.

Ready to create not just a financial plan, but entire wealth management system, that embraces change and sets you up for success? Learn how & get started here.