Projections dim with time. I tell my clients, “These expenses you have shared with me will create an image of your financial future. The image will bear some semblance to reality for a few years, much like an Ansel Adams photograph. But the further we look into the future, the more this becomes a Monet, the more it resembles Wordsworth’s Intimations of Immortality. We can only guess at the midterm future and we have no idea what the distant future holds, so depending upon this written plan is foolish. The advisor’s valid response should be: “Let’s update the information each year and reproject the data.”
Annual updates are an excellent idea, how many clients will be willing to do the expense sheet homework each year? How realistic will their table of expenses be? Who is so digitally gifted and completely fascinated with their monthly budget to offer this to you annually? Perhaps 1 percent of clients, who are as geeky about numbers as you are, yet they have no contingent inclination to do the math themselves.
The data a client gives you are static representatives, hopefully, of their current expenses. A photograph by Ansel Adams is representative of what he actually saw, yet is not what he saw. Why? His photos are in black and white! They are false images of the landscape. Beautiful, extraordinary works of art, certainly and images of reality, nevertheless.
So too is your financial plan. It is a black and white, false image of a client’s fiscal reality. Numbers are not real. Repeat that to yourself each time you prepare a financial plan, like a mantra. Numbers are representative. They are static. They are frozen in time because they represent what the client told you about the past. Not only are they black and white — they’re also stills. Again, Adams froze time with his works of artistic photography; he did not take a motion picture. Similarly, you are freezing time for the client. The data they give you represent what they think they spent last year. The data move no more than does the moon move across an Adams photograph of Half Dome. It is frozen in time and space. When you imply motion by projecting these estimated numbers into the future, you blur the painting you are trying to create. Suddenly an Adams becomes a Monet!
Living expenses are just that. They are what we spend each year. Who do you know who has not reduced their expenses in 2009 in response to the recession? If it is more than 1 in 100, you can put the article down because this information does not apply to the super rich — only to the middle class and the affluent.
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