Last night, I sat down and did a forecast of where Sarah and I will be financially over the next ten years. If our income continues at its current pace, our spending continues at its current pace, our investments continue at their current pace, we have only one autombile cycling between now and then, and we switch to our ideal house in the country, in ten years we should be able to survive without skipping a beat if we both lost our current income streams.
Wow! That sounds great! Ten years away from complete financial independence? Amazing!
A few weeks ago, a reader sent me an extremely detailed spreadsheet outlining exactly how they were going to reach debt freedom in about seventeen months. They had this worked out down to the penny.
That sure sounds great, too! Debt freedom in seventeen months? Fantastic!
The problem is that I’m incredibly sure that neither one of these targets will actually be achieved.
Something will go wrong.
A child will get sick. Someone will lose a job. A car will fail. A career change will make itself available. An investment won’t return like you think it will. An identity is stolen. A friend needs help. You’ll get a severe illness or an injury.
There are countless things that can prevent your plan from coming to fruition. The more time there is between today and the day of achieving your goal, the more likely it is that one of these things will come to pass.
So, how do you deal with the fact that something will go wrong?
First, you plan for a nice big emergency fund. The bigger, the better (to a certain extent, of course). You need to have at least a month worth of living expenses in the bank. Ideally, you have two months of living expenses for each dependent in your household. So, if you have five dependents, you have ten months of family living expenses sitting in the bank, just in case.
Second, don’t make major lifestyle choices under the assumption that your plan is foolproof. For example, don’t start shopping for a house before you have the down payment (and some extra to help with the cost of moving) in your hand. Don’t quit your job because your plan seems to point you straight toward financial independence when you’ve not crossed the finish line yet.
Third, make life choices that maximize your future options. You might financially be able to walk away from your job, but that doesn’t mean you walk in there and burn every bridge. It might feel good to tell some people off, but it doesn’t do anything to help you over the long run and it absolutely hurts you. This should be true anyway, but it’s particularly true as you’re about to make a life transition. When something goes wrong, you’re going to want as many avenues open as possible.
Finally, don’t get discouraged. It’s easy to think that a plan is worthless when you don’t achieve things exactly on schedule. It’s easy to think that your big dreams and plans that you’ve been working for are hopelessly optimistic.
Rather than focusing on the threshold you haven’t quite achieved, look back at how far you’ve come and how much smaller the distance is that you have to go. Don’t look at a glass half empty. Look at a glass half full.