From 2D to 3D: Adding The Human Dimension to Financial Planning

From 2D to 3D Adding The Human Dimension 09 23 2014A typical financial plan is two-dimensional: assets minus debt = net worth. Income less expenses = surplus or deficit. All projected out into the future to discover whether a plan can work (or not).

But no matter how complex and conservative the modeling, it’s all guesswork until you factor in the missing link that leads many of these plans to fail—the HUMAN element.

The impact of your money beliefs, fear and external influences can dramatically alter the outcome from a prettily organized spreadsheet to financial failure.

Example 1:

Your financial plan projects your financial net worth at a time in the future, using a straight-line or constant rate of return. And then in real life, a sudden and dramatic downturn in the market hits.  When the headlines begin to scream, your statement values plummet, your friends at work are selling and going to cash and the talking heads on TV are throwing grenades—what will you do? If you bail and sell, you have now guaranteed a loss. Worse yet, you probably won’t get back into the equity markets until a great deal of ground has been made up.  The 2D financial plan fails, perhaps epically. 

Example 2:

Your financial plan strongly recommends you to have a Will, Power of Attorney and Advanced Health Care Directives prepared to protect your family. Unfortunately, you remember hearing from your parents that getting a Will is a bad idea because Uncle Jack got one prepared and boom, he dropped dead 2 days later. The superstition (and fear of facing the inevitable) surrounding this ordinary part of planning freezes some people into immobility. Without understanding and accounting for this mental block, the 2D plan fails.

Example 3:

“Only the insurance companies get rich; insurance is a waste of money.” If this money story was ingrained in your childhood, it may be enough to keep you from following your financial plan’s recommendation to purchase enough coverage to protect your income, your important life goals (like sending your children to college) or your family.  Without a clear understanding of your money mindset, these recommendations—all on point and meaningful—will never be implemented because of your beliefs. The planner who doesn’t understand this—and can’t help you understand this—is creating a 2D plan in a 3D world. FAIL.

Your behaviors and mindset play a pivotal role in your financial success.

Proper financial planning—3D planning—must incorporate a keen understanding of your money history, your hot-buttons and the mindset you’ve developed about your money over many years. Those behaviors reside in a part of your mind that is mostly imperceptible, almost like brushing your teeth—you just do it without thinking.

Tomorrow morning, hold the toothbrush in your opposite hand.  How weird does that feel? You have just experienced the disruption of a habit. Now magnify that times a billion where it impacts your thinking around money.

Your money habits and thinking are real and therefore must be accounted for if your plan is to have a realistic chance at success.

Bringing your plan from 2D to 3D adds the human element. It incorporates the vividness of your life, your beliefs, your values and your mindset and ensures you’re able to take the steps you need to reach your goals.

We live in a three-dimensional world. Shouldn’t you plan that way too?