Ready. Aim… Financial Plan!

October 02, 2013

I may have told you before that my daughter participates in the ROTC program at her high school. Over the summer, she joined the air rifle team and has been practicing for the last several months. I had a chance to watch her participate in her first competition this weekend. I must admit I wasn’t sure what to expect, but as I watched her and her team perform, I began to realize that there was a lot more to the sport than just putting a pellet in the chamber and pulling the trigger.

Rachel’s commander had said at the beginning of her training that if she was going to be successful at the sport, she was going to have to train like an athlete. But until I actually watched her compete, I never fully appreciated how much hard work goes into being successful at this sport. After the event, I had a chance to speak with the commander about the preparation for competition, and as I listened to him describe the principles he teaches the cadets on how to approach the event, I realized there are some parallels between shooting a pellet at a target and managing your finances.

Air Rifle Principle: Only think about your very next shot.

Financial Planning Principle: Set priorities and don’t let the abundance of information and options leave you doing nothing.

During a full competition, each competitor will take 60 shots (20 shots from 3 positions).  While it can be tempting to worry about a bad shot just taken or think about how many more shots you have left to take, the cadets are trained to only worry about one shot: the one they are about to take.  The same thing is true when it comes to financial planning.  There are so many things that can distract you and keep you from making a good decision or, in some cases, from making a decision at all.  For example, many parents have the desire to save money for their child’s education, but when they start to think about all the different 529 plans that are out there (at least one from every state), and the cost of education, and financial aid, and student loans, et cetera, et cetera, they overwhelm themselves to the point of doing nothing.  Instead, they need to focus on one thing at a time (see https://secure.financialfinesse.com/go/2988).

If we would stop looking at everything all at once and focus on one thing, or one step, at a time, there’s a much better chance we’ll make progress. You need to set goals and prioritize them, and then map out your steps to reach your goals, concentrating on one step at a time.

Air Rifle Principle: Think safety first!

Financial Planning Principle: Have an emergency fund.

Before Rachel ever took her first shot, she was given instructions on how to handle an air rifle safely.  Each rifle is equipped with a clear-barrel indicator (CBI), which is a visual indicator that a rifle is safe to handle before and after shooting. During the shooting phase, all rifles are pointed down range, all participants are required to wear eye protection, and audio and visual commands are given to ensure no one is injured during an event.

When building a financial plan, it is equally important to take safety precautions in the way of having an emergency fund.  Most financial professionals recommend setting aside enough money in a safe place (e.g. a savings account, certificate of deposit) to cover three to six month’s expenses in the event something unexpected happens.  Failure to do this could throw off even the most well thought out plans.

Air Rifle Principle: Use practice shots to adjust your sites.

Financial Planning Principle: Use financial calculators to run projections and make adjustments as needed to get on track to reach your goals.

Before each round begins, Rachel and her teammates take five practice shots.  With these practice shots, Rachel can see if her sites are accurately positioned to help her hit her target.  If not, she has a chance to adjust her sites in order to be more accurate with each shot.

Similarly, you should use financial calculators to project whether or not you are on track to reach your financial goals.  We recently published research on the retirement preparedness of U.S. employees, and our research found that only 20% said they were on track to reach their income-replacement goals.  Of the 80% that were not on track, 76% (about 60% of the total) had not used a financial calculator to determine whether or not they were on track.  According to the Employee Benefit Research Institute (EBRI), 45% of employees simply “guess” at how much they’ll need in retirement.

Imagine if Rachel simply tried to “guess” at which direction to point the rifle in order to hit her target.  Without using the sites, she would not know if she was on target or not.  In the same way, by using a financial calculator employees can gauge whether or not they are on track and then make adjustments as needed.  Doing so will improve your chances of hitting the mark!

Air Rifle Principle: Train like an athlete.

Financial Planning Principle: Take a disciplined approach to investing.

Anyone can hit a good golf shot or make a three-point basket or bowl a strike every once in a while, but try doing it with consistency.  What makes an athlete great is not their ability to perform, but rather their ability to repeat their performance. When Rachel went through air rifle orientation, her commander stressed the fact that this was a sport and that they would train like athletes.  At first I wasn’t quite sure what he meant, but after watching her competition I saw just how much strength, endurance, muscle memory, concentration and effort went into every shot.  These competitors would be lifting and firing a rifle nearly 75 times (including practice shots) over the course of several hours.

In the same way, anyone can make a good investment decision once in a while, but try making a good investment decision consistently over a long period of time.  It’s a lot harder than you might think.  According to a white paper by Richard A. Ferri, CFA and Alex C. Benke, CFP(R), (http://www.rickferri.com/WhitePaper.pdf), even the investment professionals have a hard time consistently beating the market over long periods of time. Instead, investors should focus on creating an appropriate asset allocation and simply managing their portfolio around that allocation through strategies like re-balancing and dollar-cost averaging.  In other words, it’s better to be a disciplined investor, rather than an emotional one.

Air Rifle Principle: Track progress.

Financial Planning Principle: Set short-term goals so you can measure your progress toward long-term goals.

Rachel has been practicing for her competition for months, and as part of each practice round, she has recorded her total score.  This lets her know if she is getting better.

In the same way, you should set goals that are measurable.  For example, if your goal is to build a fully-funded emergency fund, start with a short-term goal of having $1,000 in your savings account within the next 12 months.  This is easy to track and lets you know that you are on pace to reach your longer-term goal of three to six months of expenses. Using these principles will give you the skill to manage your finances wisely and the finesse to hit a “Bull’s Eye” every time.