In an earlier blog, Hardcore Navy SEALS, the Laws of Combat, and Financial Planning, I provide an overview of the four laws of combat and their application to financial planning. These laws were defined and discussed in “Extreme Ownership” by former SEALS Jocko Willink and Leif Babin. This blog will focus specifically on the third law, Prioritize and Execute(the others: cover and move, simple, and decentralized command), and its importance to your financial planning success.
Even the most competent of us are overwhelmed with trying to tackle multiple financial planning goals effectively. Complex challenges and unforeseen problems can arise making it difficult to achieve your mission. While financial planning decisions may lack the immediacy of life and death, stakes are high when planning for a successful financial future. As the leader on our financial planning team, my job is to help you determine the goals with the highest priority and create a road map to execute the tasks necessary to achieve your financial planning mission.
The process of implementing Prioritize and Execute:
Determine the highest priority problem.
Describe or define the problem using simple, clear, and concise terms. (Simple, the second law of combat.)
Develop and determine a solution to the problem.
Execute the solution, focusing all necessary efforts and resources toward this priority task.
Move to the next highest priority problem. Repeat.
When priorities shift due to a change in circumstance or economic factor, I make sure all team members (clients and myself) understand the adjustment.
Maintain the ability to see other problems developing and modify focus if needed, avoiding target fixation.
Effective prioritizing and executing includes:
Careful contingency planning allows us to anticipate any likely challenges that could arise during execution of our plan. Foreseeable problems include a change in the market, a job loss, death or illness of you or your spouse, etc. Among the most common contingencies clients and I routinely plan for is long term care costs in retirement years. Without proper planning, the cost of long term care could derail even the most financially prepared retirees, so we address this potential risk head on in our strategy.
Maintain the strategic picture.
It is critical we do not get lost in the details of our plan, or sidetracked by the inevitable roadblocks that arise. We must frequently review the ultimate mission/strategic picture. With our mission in mind, it is far easier to determine the highest priority effort and focus energies towards its execution.
My clients have various mission objectives depending on their stage in life; for many it is financial freedom in retirement, others it’s paying off student loans, purchasing a home, or paying for a child’s education. Clients often struggle with maintaining a strategic picture when it comes to retirement investment planning. In times of market volatility, or a sudden market downturn, clients can easily lose sight of their long term investment strategy, focusing on the immediate change in environment. Upon building a portfolio, we address the potential for market downturns and what our steps will be in those scenarios. Most of the time, the strategic picture requires we stay invested, do not cash out, even in the times of volatility and negative returns. (Most retail investors sell low and buy high, it’s my job to keep clients from making those mistakes.) It is easy to be sidetracked by an unpredictable market and particularly with retirement planning.
It is essential we plan for the long term and review the strategic picture before making any reactive decisions based on what may be short term information or events.
Adapt to changing circumstances.
Priorities can rapidly shift and change. The highest priority task may shift with a change in life circumstances or economic factor. As a team, we must maintain the ability to reprioritize our efforts and adapt to changing circumstances. Recently, a client of mine unexpectedly inherited a sum of money. Prior to these newfound funds, the client and her spouse were saving for retirement, funding their kids’ college, and were delaying purchasing a home since it was not a priority and their cash flow was directed to their top two goals. The inheritance funds allowed the clients to satisfy their college funding goal and augment their retirement savings to healthy levels. With these priorities accomplished, we adapted the plan and shifted their primary goal to purchasing a new home. In this case, the change in circumstances was fortuitous, but still required reprioritizing their goals and modifying their plan to achieve them.
Avoiding target fixation.
Target fixation can cause someone to sacrifice a strategic victory for an immediate tactical win. In Hardcore Navy SEALS, I gave an example of a doctor client who focused solely on her retirement savings, neglecting to pay more than the minimum on her student loan debt. After running a long-term cash flow projection, it became clear that by not paying off her loans at a faster rate they continued to grow exponentially, forcing her to pay them through her entire life, eventually at the cost of her retirement planning victory.
Another example I see countless times is clients trying to pay off their consumer debt at the expense of their emergency savings. Consumer debt interest rates can be astronomical and for long term financial success, it is vital you pay off your credit card debt. However, the underlying issues often causing credit card debt must be addressed for a plan to be successful. Often, the debt was accumulated due to a change in circumstances or unforeseen expense (job loss, car repair, medical emergency, etc.). When individuals do not have sufficient cash savings, they are forced to turn to high interest credit to cover the cost of the emergency. For this reason, when I work with clients looking to pay off credit card debt, their strategy includes starting and funding an emergency savings account. Even if this means paying a little longer on the debt, our goal is to fund enough emergency savings that if another emergency happens, they are not forced to use their credit cards and start the debt cycle over again. In this scenario, paying off your debt as soon as possible without addressing the underlying cause is a tactical win. For a strategic victory, our strategy must address the root of the debt accumulation. Note, emergency funding is also a form of contingency planning.
One of the great benefits of employing prioritize and execute in the field of financial planning is, by executing one action towards a financial planning goal, you are frequently helping the success of your other financial goals. Buying a home may help you save on taxes and provide you investment growth in the form of equity. Paying off your student loans quickly will free up your cash flow to put towards other goals like retirement or having a baby.
Our financial planning team is tasked with the mission of achieving your financial victory. To accomplish this mission, we apply Prioritize and Execute, the third law of combat, which gives us the framework to determine the priority objective, and build a plan to execute that objective. We repeat this analysis as unexpected events happen, and we maintain the overall strategic picture until your mission is complete.