The 7 Reasons Why Traditional Financial Planning Is DeadGuest_Blogger | Mar 30, 2010
Have you been searching for financial direction but have yet to turn up any real solutions that apply to you? Robert Pagliarini, author of "The Other 8 Hours: Maximize Your Free Time To Create New Wealth & Purpose" and financial expert, stops by to tell us why traditional financial planning just doesn't apply in today's world.
I have a real problem with traditional financial planning. Early on in my career I did a financial plan for a client. I told them that all he had to do was to cut his cable bill, stop going on vacations, eliminate eating out, and bring a sack lunch to work every day, and that he would have enough to retire in 40 years. I said this with a straight face. He looked at me like I was a moron, and I was. I was basically saying, “Sacrifice your life for the next 40 years and then you’ll have enough money saved that you can quit working and live the same lifestyle.”
Here are the top 7 problems with traditional financial planning:
- Sophie’s New Choice. The limitations inherent in traditional financial planning run deep and have created the dilemma I described above. It’s what I call Sophie’s New Choice. Should I skimp and save for the next 40 years so I can then squeak by in retirement or should I enjoy life a little now and pray I hit the lottery when I retire? These are your options? The choice is as subtle as Vinny asking, “Would you like it in the head or the chest?”
- Age-related issues. You don’t have to be Dr. Oz to know that the older you get, the more health issues you face. During your prime years—the years when you are the most vibrant and healthy, you’re working. And that when you retire your health begins to deteriorate. As your years increase your energy decreases. You won’t have the same bounce in your step as you age. One retiree said, “Now that I’ve finally got the ability, I don’t have the mobility.”
- Delayed gratification. Would you rather have a cupcake now or tomorrow? If you’re like most people, you want it now. Not just cupcakes, but everything—vacations, nice cars, security, time for hobbies, travel, etc. But your choice is not today or tomorrow. Do you live for today or scrimp and save so you can have a decent retirement 40 years from now. That’s not delayed gratification, that’s nearly-impossible-to-imagine gratification!
- Late start. The traditional approach just doesn’t work effectively if you start too late. If you’re 22 and diligently contributing 10% of your income to a 401(k), time is on your side. But if retirement is nearing and you don’t have anything saved, you’re not going to make it with traditional financial advice. Don’t take my word for it. Use any one of the retirement calculators online to see for yourself. The numbers just don’t work if you start too late.
- Live to work. The pre-boomers had a job. The boomers had a career. The post-boomers want a calling. Those born after the boomers want to live to work, not work to live. They want to find meaning and significance in the work they do. Traditional financial planning forces you to trade your time and your life for a paycheck.
- Retirement focused. Instead of looking at ways to improve life today, traditional financial planning focuses almost entirely on retirement, which could be 20, 30, or 40 years in the future. If you’re working overtime just to pay this month’s bills, you need solutions and strategies to live a richer life now, not 40 years from now.
- Expense-only focus. Traditional financial planning focuses exclusively on just one side of the cash-flow equation—expenses. What can you reduce, eliminate, or postpone? How much can you sacrifice today for retirement 40 years from now? There’s nothing wrong with reducing excess and unnecessary spending, but that’s all traditional financial planning focuses on! Financial planners and finance “experts” neglect the other side of the cash-flow equation—income! In addition to consuming less, we should also focus on boosting our income.
The traditional approach to improving finances and saving for retirement initially leaves most Americans confused and then, when they work through the numbers, frustrated. “How can I save for a distant future when I’m struggling to make ends meet right now?” Traditional financial planning is like measuring a mile with a ruler—it can be done, but it is very time-consuming and you’re going to have one hell of a backache. This is why so many are saying forget it and instead, are choosing to spend today and ignore tomorrow. This feels good in the moment, but it is obviously a horrible long-term financial plan.
It’s easy to point fingers when someone is clearly living an extravagant lifestyle. Just tell them to cut back, right? Even though I’ve worked with a lot of people over the years, it is still frustrating to sit across from someone who earns a lot but spends lavishly and complains about their debt and their poor financial situation. That answer is simple. But it’s an entirely different situation when you’re sitting across from a couple who are in debt and struggling but they’ve already sacrificed and cut their expenses to the bone. Where are all of the financial planners and eager solutions for that couple?
Let’s be clear, I’m a big proponent of the traditional approach. I am a Certified Financial Planner. I have a Master’s degree in Financial Services. I am the president of a financial planning firm. I wrote a bestselling book based on the traditional approach. It can and does work. You should cover the basics and implement the traditional strategies to improve their finances, but you must temporarily forget about all of the traditional financial advice you’ve ever read or heard because it will prevent you from getting the life you want, and it will make you ineffective and frustrated.
Imagine you’re driving a car. Traditional financial planning advises you to conserve gas regardless of how uncomfortable or how much longer it makes the ride. Of course, if that doesn’t work, you’ll be forced to choose a closer and less desirable destination, whether you like it or not.
The assumption is that you’ve got a limited supply of gas so you have to make it last as long as possible. It doesn’t matter if it’s 100 degrees out and that you’re dying inside the car. If you can drive a little farther by having your windows rolled up and your AC off, then that is a sacrifice you must make. The focus is on stretching your existing resources as much as possible, regardless of the sacrifice involved.
Traditional financial advice focuses on depriving, reducing, cutting, and eliminating. All the financial experts are hell bent on getting you to cut your expenses by shrinking your lifestyle. They want you to take your big goals and dreams and shrink them until they are shriveled and unrecognizable. Stretching your resources is a good idea, but when the entire focus is on conservation, getting by, and making do, you lose the capacity to identify opportunities. Think about it. If you’re so focused on the dwindling gas gauge, you may not notice the six gas stations you just passed.
Fortunately, you have the other 8 hours. In The Other 8 Hours you will learn a completely different approach. Instead of focusing all of your attention on how to stretch the limited gas you have, the goal will be to find a gas station so you can fill up. Do you see the difference? You will learn to focus on your potential and what you can accomplish instead of on only what you currently have.
You want to grow, expand, achieve, and experience, but traditional rules tell you that you need to reduce, contract, and limit your life. I will show you how to jump out of the box you’ve been crammed into and to expand your means to fill your vision instead of shrinking your vision to fit your means. Call it financial planning 2.0.
The other 8 hours are the best resource you have to radically improve your life and finances. The other 8 hours is time. You can spend this time or invest part of it. It’s the same concept with money. Compound interest can transform just $3 a day into over a million dollars at retirement. The Other 8 Hours will show you how to leverage this time and invest it to produce a bigger and better future for yourself.
About The Author
Robert Pagliarini, author, financial expert, and online columnist for , In his new book, The Other 8 Hours, Robert empowers people to live life to the fullest by radically changing the way they spend “The Other 8 Hours” – the 8 hours not spent sleeping or working. Robert covers looking beyond your job, hour-long commute, credit card debt, or even just that gnawing feeling that life is sometimes passing you by and also offers guidance to get fresh solutions for carving out more time. And they’ll find the inspiration to spend that free time in a more productive way - whether it is starting a business, writing a blog, losing weight, or developing a hobby.