18. Write it down

One of the best recommendations I read when I was working on my financial plan was simply to "write it down": decide how you want to manage your finances, and then create a detailed written plan. It turned out to be a harder exercise than I thought - the act of committing my vague plan in writing forced me to consider many subtle points. For example, I'm comfortable with a stock/bond ratio of 80/20 for now, and know that I'd like to increase the bond ratio as I go, but in what pace? Where should it be in 1 year, 5 years, etc?

Besides making you "think it through", a written plan also helps you to commit to your plan. When the going gets tough, you'll have the plan reminding you what you had in mind when you could think coolly without succumbing to emotions.

And the last benefit, in my opinion, is the peace of mind. Once I put it all in writing, I'm done! Almost... at least done in the sense that I don't need to consider every morning if 80/20 is too aggressive, if VAMPT is better or worse than WTAXA, if a high turnover ratio of one of my funds is a dangerous signal, and what not. In other words, I don't need to worry if the plan is not perfect.

It doesn't mean that the plan cannot be reversed and changed. In fact, it would be a good idea to revise it at least annually. But, and this is the important part, you should never revise your plan based on recent events. Markets go up and down. Our fear and greed go up and down with them. Revise your plan only when you are in a position to think rationally about your goals, the level of risk you're comfortable with, and any new knowledge you have acquired. Revising your plan once a year is probably enough, and since I also recommend an annual rebalance, you can combine the two into your own "financial holiday". Mine, btw, is on Christmas.

I'm going to go naked in upcoming posts and share with you my financial plan. It's not perfect - and it will never be. But, as the Prussian General Karl von Clausewitz said, "the biggest enemy of a good plan is the dream of a perfect plan". Stick with the good plan!