Financial Planning Isn’t Just Complicated, It’s Complex—There’s A Difference

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Yes, until recently, I thought complex and complex were very well synonymous, but after reading General Stanley McChrystal’s book, team of teams, I was mentored and educated.

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The book, ostensibly geared toward leaders in business, walks us through the fascinating philosophical and practical framework necessary to bring together the myriad of the world’s elite fighting forces in search of a common cause. And the big thing for me, which has serious implications for financial planning, was, “Being complicated is different from being complicated.”

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how so? OK, something that is complex can be confusing and has a lot of moving parts, like an internal combustion engine, but it can ultimately be broken down into “a series of neat and clean deterministic relationships.”

Using financial planning as an example, there are standard quantitative elements of financial planning – such as investments, insurance, taxes, estate, retirement and education planning – that cover a topic that is deep and wide, but at the same time, if If you knew exactly what you wanted to achieve, you could pinpoint exactly what steps should be taken within each element, even when combined with others, resulting in a There has to be a successful scenario, at least numerically speaking.

In essence, there is a textbook approach to financial planning, and we can limit the exercise to a complex, but nonetheless computational, rational, logical, and therefore predictable search. But financial planning isn’t just complicated…

“On the other hand, complexity occurs when the number of interactions between components increases dramatically – the interdependence that allows the virus and the bank to spread; this is where things quickly become unpredictable,” McChrystal tells us. . “The reality is that in a complex system small things may or may not have any effect on a large scale, and it is nearly impossible to know what will be the case.”

Financial planning is complex because we are complex. You and I aren’t just dollars and cents, and we often don’t even understand—in fact, the field of behavioral economics has demonstrated that we are driven more by emotion than by equation. This unpredictability is then compounded by the interdependence of anyone and everyone else involved in the financial planning process – spouse, ex-spouse, partner, child, parent, planner, lawyer, CPA, boss…

It’s like the proverbial iceberg example: what we see on the surface is quantitative, but what lies beneath is qualitative.

But I don’t want it to seem hopelessly complicated. The good news – the good news – is that by understanding yourself better, even the most complex financial planning scenario, while not necessarily easy, can be made surprisingly simple. Knowing what is most important in your life can make it clearer what to do with your money.

So the most important part of financial planning is actually life planning. That’s why financial planners also need financial planners. And this is why true financial life planning is not a product, but a process.

Bonus: Do you want to Listen What is the resolution of complexity like? pay attention singing it JS Bach’s Prelude to Cello Suite No. 1 in G Major. You may have heard Yo-Yo Ma playing 300-year-old music that can be boiled down to memorizing math—but you’ll hear him pressing and pulling notes, swelling and lowering, along with a story on a page. one story. The song builds and builds to the point of tension before resolving to what feels like perfection. To enjoy

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