How to Combat Financial Stress: Have a Backup Plan for Your Plan

We are in a blog series discussing how strategies for running marathons could help you maximize your wealth in a meaningful way. If you’re just joining us in this series, So far, we have covered:

Strategy #1: Know your why.
Strategy #2: Why you need a contingency plan.
Strategy #3: What to do when your plan hits the fan.
Strategy #4: Should You Bet Your Financial Future on Artificial Intelligence?

In today’s post, we will talk about a marathon strategy to combat financial stress. The strategy today is to have a backup plan for your plan.

And holy cow, am I glad I had a backup plan for the Twin Cities Marathon. If you haven’t heard, the race was canceled this year due to conditions, so the first thing I want to say is if you were planning to run or were supporting somebody who runs, I’m sorry that the race was canceled.

I know there’s just so much time and preparation that goes into the race for runners, supporters, business owners, volunteers, and just people who are excited for this big day. But I also want to share that I’m grateful I had a backup plan for the race. A wise coach told me I should have a plan or a goal and a backup plan.

They also told me to have a backup plan to the backup plan. And then have a backup plan to the backup plan to the backup plan. And so of course I did it, because what do I know! I just started running marathons.

My marathon plan, backup plan, backup backup plan, and backup backup backup plan

My first plan was to qualify for Boston, which was my big goal, which would be tough. I also had a backup plan: get a PR (personal record) by running one second faster than the last race. And then my backup to the backup plan was just to finish the race. And the last backup plan was to be grateful and move forward. My wife told me I had to promise her to stop if things got really bad and I couldn’t finish the race so I didn’t hurt myself.

That was the plan, and I worried very little going up to the race. I heard the race could get canceled; they were talking about the possibilities and moving up the threat level of the weather, but I slept very well the night before. And I slept well because I had a plan, I had a backup plan, and unfortunately, I had to use my backup backup backup plan of just be grateful and move forward.

I got a text the morning of the race that the race was canceled, so I decided to get on with the day and test out some new cooling equipment that I bought. I wanted to see how cooling vests can impact performance and heart rate. You’ll probably laugh at me in the picture; I had all my running gear on, my Breathe Right strip, and I look like a dork. I was skipping, and my wife took a picture. So, you can make some fun of me for that. That’s just fine, but it was cool testing that vest and doing a half marathon to see what my marathon time could be.

And that was a reason to be grateful and have a day to know I could run. To make the most of the day, we had some fun, played some cards that night with friends who also couldn’t run, and moved forward, looking at the next race.

So, what in the world does this have to do with money, and how you can use a backup plan to worry less and increase confidence in your financial future? Quite a bit, actually, I think.

The biggest things I hear people worry about when they come to my office

I have found that people worry the most about the questions they don’t have the answers to. Many people come to my office and are worried about their income. They’re worried about their income dropping due to a job loss, a job change, a bonus not coming in, or retiring, and they just haven’t worked through how that all looks.

What I like to do is run their financial plan and show them a probability of success. And if it doesn’t look good, develop a backup plan and then backup plans to the backup plan until their plan gets to a point where they’re confident. Often, that’s an 80% or 85% probability of success, or sometimes 90% for clients who want to be conservative.

That exercise can really help if you are worried about running out of money. We run the scenario, see what it says, and if you’re not happy with the results, you roll up your sleeves and come up with a backup plan.

I had one client whose score was around 40%, or the probability of success was 40%, and they said, “Well, what if I work an extra two years?” And it bumped up their score, but they still weren’t happy. So they said, “Well, what if instead of the second property in retirement, we just increased our vacation budget by $20,000 a year in retirement? That, they thought, would allow them to spend a couple more months down south in the winter.

So, we did that, and their plan score shot way up. Those types of exercises, developing backup plans, can really increase your confidence.

Other “what-if” questions people ask me

The other questions that I find people ask that they’re worried about are things like: What happens if the market crashes tomorrow? What’s my plan’s probability of success? What if something really bad happens, like my spouse dies, or I die, or there’s a disability, or somebody needs care?

In that case, we run an insurance analysis to determine if there is enough coverage, or are there enough assets to cover that risk, to self-insure? We usually find one of two things when we do an insurance analysis.
1). Somebody needs more insurance, or 2). They actually are over-insured. And that’s a fun day because you get to call your agent and say, “Guess what? I’m overinsured!” And they might reduce coverage by 30% or 50%.

Other questions people ask are: What if tax rates increase? What if inflation is high for the next 10 or 20 years? What if social security benefits are reduced? What if my company stock doesn’t perform? I’m so exposed in that area. My pensions and half my net worth are in company stock. And those are all good questions.

I believe if there’s a question keeping you up at night, you owe it to yourself to run an analysis and develop a backup plan if you’re not happy with the results.

In summary, developing a backup plan can help combat worry, help you sleep better at night, and increase confidence in your future so you can feel free to enjoy the wealth you’ve created. We’d love to connect with you if you’re interested in learning more about a financial plan analysis or a second opinion of your financial plan. Click here to schedule a no-obligation initial consultation to see how we can help.