It will cost you 200 bucks
“Whatever it is, it will cost you two hundred bucks, if that is what it is.”
~ Tom Magliozzi from CarTalk
The biggest difficulty is knowing “if that is what it is”.
Planning is full of assumptions.
Life is full of assumptions.
Sometimes reality turn out better than assumption. Sometimes not.
I have been monitoring my savings go up and down in the past months. Some turned out as expected. Some turned out worse.
I cannot control the movement of the individual asset class. The only thing I can control is the asset allocation.
And the signal I have to know when, or if, to change the allocation is whether my assumptions pan out as planned. If not, I need to dig deep and find out why, correct them, and replan.
As an illustration, let’s say I assumed inflation would be 3% and savings would return 3.5%. But oops, inflation went up to 5% and savings returned (as planned) 3.5%. If this imbalance persists, this can have undesirable inflation impact.
What do I do?
I do not have to do anything, yet. I can wait and see until the next period. Maybe my savings this year can earn a bit more and inflation may come down to less than 3%. Maybe. And maybe not.
The impact of asset allocation change will take time before it is visible. I may have made the correct change or I may have made the wrong change. Only time will tell.
The only change where I have more direct control is the spending. I can temporarily reduce non-essential spending and see how it goes in the next period.
Lessons learned so far.
Be as detailed and as explicit as possible in the financial assumptions
Adjust / correct based on what I find in the monitoring process
Do not fret over what’s done - move on
Have a great day.
Disclaimer: Anything I share is not intended as financial advice; I am merely sharing personal opinions and experiences. The information is of general nature and you should only use it as a place to start your own research and you certainly should do your own due diligence. You ought to seek professional financial advice before making any decisions.