#19 - Financial Projections

Financial projections can be both helpful and misleading when planning your financial future. While they provide valuable insights into potential outcomes, they shouldn't be taken as literal predictions of what will happen.

• Your financial life consists of: money in, money out, growth over time, taxes, and inflation. All financial projections are just projecting these variables
• Monte Carlo simulations introduce randomness to account for market volatility and create a range of possible outcomes
• More variables in a projection create more opportunities for error, not necessarily more accuracy
• The real value comes from understanding sensitivities – which factors significantly impact your financial future
• "Probability of success" metrics can be misleading since they don't distinguish between barely succeeding and wildly succeeding
• Financial plans should include predetermined adjustment triggers or "guardrails" that specify when and how to adapt
• For retirees, projections help answer "how much can I spend?" while younger clients benefit more from simple savings calculations
• Regular updates are essential as your financial situation evolves and market conditions change
• Control what you can (savings, investment allocation, insurance) and be prepared to adjust as life unfolds
• Remember: "All models are wrong, but some models are useful"