Don’t Leave Home Without Your Financial GPS

Financial planning attempts to predict the future using a series of assumptions. At its core, a financial plan is built on educated guesses about things we cannot fully control. A job change, an unexpected expense, or a shift in markets can quickly take life in a direction different from what was planned. Even the most carefully crafted plan becomes outdated the moment it’s finished. The world (and your life) constantly evolves, and your financial plan is just a snapshot of one possible path to your desired retirement.

But that doesn’t mean you shouldn’t have one. A plan’s value is not in its precision, but in the guidance it provides. Think of your financial plan as a GPS. It’ll point you in the right direction, but you still need to keep your head up and watch your surroundings. By regularly checking and refining your plan, you can compensate for context, circumstances, and changes.

The goal of a financial plan is not to describe the exact path you take to retirement. Instead, it is meant to help you make better decisions as conditions change, while keeping you oriented toward your long-term destination. You can’t control the tax code or how Congress deals with Social Security. You also can’t just decide that you’ll make another hundred grand this year. Most importantly, you can’t control what the financial markets are going to do. The only thing you can control is your own actions.

Since we cannot predict the future, we estimate how external factors will look over time. But we must recognize that these estimates will most likely be wrong. That is not a failure of planning; it is simply the reality of operating in an uncertain world.

Let’s use the US stock market as an example. From 1926 to 2025, the S&P 500 Index¹ had an average annual return of 10.49%. If we had to guess what the S&P’s return would be in a random year, we’d say 10.49% because that’s what the data shows us. But we’d most likely end up being wrong. Over the 100 years from 1926-2025, the S&P 500 Index was within two percentage points of its average return (8.49% - 12.49%) only seven times. This highlights an important point: averages are useful for long-term planning, but they rarely reflect what happens in any given year.

We can use several techniques to account for all the uncertainty swirling around your finances, but eventually that uncertainty collapses into specific events, and we have to work with reality. At that point, the plan must respond to what happened, not to what was expected.

Maybe your company had a bad year because it lost a big client, or you brought in a big new contract. Or maybe you decided that you really needed a boat (or, as people say, “a hole in the ocean that you shovel money into”)? Did the markets have a year like 1933, when the S&P 500 Index was up 54%? Or did it have a year like 2008, when the S&P 500 Index was down 37%?

Whatever happens, you need to adjust your financial plan to account for it. Very few (good) financial plans looked the same before and after 2008. Just like a GPS recalculates when you miss a turn, a financial plan must adapt when reality deviates from expectations. You need to regularly review and revise your financial plan to ensure that, whatever happens, you stay on track toward the retirement you’re working toward. For most people, this means reviewing the plan annually or after major life events, rather than reacting to every short-term change. That discipline is what builds confidence over time, allowing you to move forward knowing you can adjust as life unfolds. A good financial plan doesn’t eliminate uncertainty, but it helps you navigate through it with confidence and direction.

 

¹ Source: S&P 500 annual returns from 1926-2025. Data provided by Dimensional Fund Advisors.