Personal Financial Planning and Your Toyota
Personal financial planning relies on assumptions that are unreal at times. It's a danger you need to be aware of. For example, if you assume you'll make 20% on your investments for the next 20 years, your planning will be useless. Why? 20% is far too high an assumption.
As you might imagine, as the owner of a wealth management firm, I'm pretty scrupulous about what assumptions I use in my personal financial planning work. Clients depend on me not to make unrealistic assumptions. In fact, my own family relies on me not making unrealistic assumptions.
But as a two-time Toyota owner, I may have relied on some assumptions when I bought my last car. My first assumption was that the vaunted Toyota quality would continue from my last car to my current car. Was I unrealistic? Maybe. But then again, Toyota's had a reputation for excellent quality for decades. It's one of the key reasons they've become the #1 car manufacturer in the world, recently surpassing the sales of the old champ, GM.
Oh well, as they say, past performance doesn't guarantee future performance.
Here's another assumption I'll have to adjust about my Toyota. Kelley's Blue Book, an authoritative source for used car prices, announced they were reducing their estimate of used Toyotas. Traditionally, Toyotas have had strong resale value. Now they will suffer because of all the recalls of their vehicles. People's perceptions will change regarding Toyotas legendary quality and they won't pay as much for a used Toyota.
My own Toyota's not one of the recall cars. But I'll bet the re-sale value goes down anyway. Of course, I'm not basing my personal financial planning on the re-sale value of my Toyota, so, while it may affect my finances in some way in the future, it's not going to be a big deal.
On the other hand, some people - including some financial professionals - continue to make the craziest assumptions when they put together personal financial plans. For example, assumptions regarding the returns you should expect from your investments. Be careful here. I mentioned the silly, outlandish assumption of 20% above. But even the typical numbers some people use and think are prudent should be carefully scrutinized.
For example, those numbers you've read about how stocks return somewhere north of 10% over the "long run" are misleading. And depending on the amount of time you've got until you need the money, they're frequently dead wrong. You don't want to be using assumptions like that when you use one of those retirement planning calculators that are all over the Internet. Remember: garbage in, garbage out.
But false assumptions don't end with investment returns. For example people tend to underestimate what their expenses will be in the future, especially when it comes to retirement. This doesn't surprise me because, frankly, lots of people assume their current expenses are a lot lower than they really are.
The thing about the Toyota recalls is that all the hub-bub will eventually pass. The company will either get back to making great high-quality cars again or they won't. The market will respond. And as for the re-sale value of my Toyota, I think I'll survive if it goes down and I can't get top dollar when the day comes to sell the thing.
I wish I could say the same for a lot of the assumptions people make in their personal financial planning. In fact, if there's one thing I could say that would impact your financial future today, it's this: think about any assumptions you've made and put those under a large magnifying glass right now. Then correct whatever bad assumptions you may have made and deal with things are they really are - not as you may have assumed they are or will be. Ground your personal financial planning in reality. Then your won't have to worry about the re-sale value of your Toyota.
As you might imagine, as the owner of a wealth management firm, I'm pretty scrupulous about what assumptions I use in my personal financial planning work. Clients depend on me not to make unrealistic assumptions. In fact, my own family relies on me not making unrealistic assumptions.
But as a two-time Toyota owner, I may have relied on some assumptions when I bought my last car. My first assumption was that the vaunted Toyota quality would continue from my last car to my current car. Was I unrealistic? Maybe. But then again, Toyota's had a reputation for excellent quality for decades. It's one of the key reasons they've become the #1 car manufacturer in the world, recently surpassing the sales of the old champ, GM.
Oh well, as they say, past performance doesn't guarantee future performance.
Here's another assumption I'll have to adjust about my Toyota. Kelley's Blue Book, an authoritative source for used car prices, announced they were reducing their estimate of used Toyotas. Traditionally, Toyotas have had strong resale value. Now they will suffer because of all the recalls of their vehicles. People's perceptions will change regarding Toyotas legendary quality and they won't pay as much for a used Toyota.
My own Toyota's not one of the recall cars. But I'll bet the re-sale value goes down anyway. Of course, I'm not basing my personal financial planning on the re-sale value of my Toyota, so, while it may affect my finances in some way in the future, it's not going to be a big deal.
On the other hand, some people - including some financial professionals - continue to make the craziest assumptions when they put together personal financial plans. For example, assumptions regarding the returns you should expect from your investments. Be careful here. I mentioned the silly, outlandish assumption of 20% above. But even the typical numbers some people use and think are prudent should be carefully scrutinized.
For example, those numbers you've read about how stocks return somewhere north of 10% over the "long run" are misleading. And depending on the amount of time you've got until you need the money, they're frequently dead wrong. You don't want to be using assumptions like that when you use one of those retirement planning calculators that are all over the Internet. Remember: garbage in, garbage out.
But false assumptions don't end with investment returns. For example people tend to underestimate what their expenses will be in the future, especially when it comes to retirement. This doesn't surprise me because, frankly, lots of people assume their current expenses are a lot lower than they really are.
The thing about the Toyota recalls is that all the hub-bub will eventually pass. The company will either get back to making great high-quality cars again or they won't. The market will respond. And as for the re-sale value of my Toyota, I think I'll survive if it goes down and I can't get top dollar when the day comes to sell the thing.
I wish I could say the same for a lot of the assumptions people make in their personal financial planning. In fact, if there's one thing I could say that would impact your financial future today, it's this: think about any assumptions you've made and put those under a large magnifying glass right now. Then correct whatever bad assumptions you may have made and deal with things are they really are - not as you may have assumed they are or will be. Ground your personal financial planning in reality. Then your won't have to worry about the re-sale value of your Toyota.
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