These articles were written for Arrivity’s monthly newsletter, The Road Ahead. The unique approach of writing them in the first person has elicited positive feedback from financial planning clients.

Map Life’s Adventure with a Financial Plan

Before the whole world was carrying a GPS around in their pockets, I loved planning weekend camping trips using detailed topographical maps. I’d unfold a section of the wilderness on my kitchen table, locate a starting point, then trace alternate routes into scenic high country, waterfalls, or alpine lakes. Using the map in front of me I could choose a leisurely hike or a strenuous expedition and I’d have a pretty good idea of what kind of gear I would need for the trip.

Having the whole picture right in front of me was reassuring: I could visualize the terrain and even plot out alternate routes in case conditions on my chosen trail started to get hairy. With my topo map in my pocket, I felt confident to occasionally leave the beaten path and explore hidden vistas. Adventure is exhilarating, and even better when you have a plan.

Choose your path

A personal financial plan is rather like that topographical map. With a detailed view of the landscape, you can plot out different routes depending on where you want to go and what you’d like to see along the way. Your goals and aspirations determine the destination for your financial plan. Once you’ve plotted your route, you’ll have a good idea how you’re going to get there, but that doesn’t mean you can’t do some exploring along the way.

Why have a financial plan

It’s never a good idea to set off into the wilderness without a map. And it’s also no fun to hike only where the crowds are because you’re unsure of the path. A financial plan is a great way to plan your life journey, whether you’re just starting out or you’re a seasoned traveler. Your financial plan helps you:

  • Prioritize your goals – like buying a house, paying off debt, or funding retirement – and plan how to get there.
  • Gain a better understanding of how to structure savings, investments, and insurance to secure your future.
  • Make sure unexpected events or emergencies don’t become disasters.
  • Stay motivated because you have a plan for reaching your goals.
  • Know what kind of resources you have so you can splurge or take a calculated risk.

Your personal financial plan also helps you have more productive conversations with your spouse, partner, or family members about finances – it literally keeps you all on the same page. Money is an emotional topic, but better information and an objective planning process can help keep everyone on track.

You may ask why I still prefer a topographical map when I’m exploring the wilderness. It’s because I’ve heard about the trouble people get into when they just rely on their mobile device. I prefer to know the landscape and have a complete plan, not just get directions for which way to turn next.   

If you’re not familiar with how to read a topographical map, you may need some pointers. And when it comes to financial planning, your Arrivity planner can guide you through the financial terrain that lies ahead and make sure your journey is full of the right kind of adventure.

Are you Bunny Slope or Black Diamond?

I have to be honest, whenever I meet with my financial planner and we get to the questions about risk tolerance, I suddenly become extremely uncertain: Am I a low risk person? Highly risk tolerant? Or somewhere in between?

Most of the time I seem like a low risk individual. I drive close to the speed limit, avoid bungy jumping, and stay inside during lightning storms. On the other hand, I’m a person who walked away from a secure corporate job in my mid-50s to become happily self-employed. Risk is a complicated topic. One person’s no-go is someone else’s idea of a howling good time.

Risk tolerance and your financial strategy

It’s important for your financial planner to understand your tolerance for financial risk so they can make recommendations for your investment strategy. They’ll want to understand how comfortable you are with uncertainty. You might get a thrill out of tracking the day-to-day movements of stocks, or you could be someone who freaks out when you see minus signs on your investment statement. If your portfolio doesn’t align with your risk tolerance, it will be more challenging for you to follow your financial plan on the journey toward your financial goals.

Risk tolerance is a very personal thing that’s shaped by experience, background, and plain old temperament. Think of it like a ski resort: Ski resorts have different types of terrain, all the way from the beginner bunny hill up to double black diamond. Skiers choose their runs based on a number of factors including their personal skill level and how much of a rush they’re looking for. When I was skiing in my 20s, it was no big deal to wipe out occasionally. Now I’d rather have a relaxed day in the crisp mountain air (followed by a hot toddy in the lodge).

Risk tolerance is an assessment of comfort level. One skier may have the skills to attempt a black diamond run, but they may not enjoy the added adrenaline. Other skiers are only satisfied in the backcountry where the risk is high but so is the thrill. The key is to hit the slopes with the right equipment and a good trail map, so you can maximize fun while minimizing danger.

Your risk is personal

I like to keep all this in mind when I meet with my financial planner. When the subject of risk tolerance comes up, I know there’s no “right” answer. They’ll ask a series of questions to try to zero in on my personal comfort level –  this isn’t meant to put me in a box. What it does is guide investment strategies that will help me meet my goals without losing sleep.

I’ve also realized it’s important not to over-think questions of risk tolerance because it’s only a snapshot. My financial plan can – and should – be adjusted over time based on conversations with my financial planner and my changing goals and attitudes.

For some, risk can mean opportunity, excitement, or a shot at big gains. But since life is uncertain, you also need to know how you feel about the potential for losses. Your Arrivity planner will help you determine your risk tolerance so your personal financial plan stays on the right road.