Guiding Principles for Financial Planning
Principles for Devising a Robust System
Henry Ford’s solution to paying workers for time spent “walking about” was a new system, the assembly line, an idea he adapted from the overhead trolleys used in the meat processing industry. “The first step forward in assembly came when we began taking the work to the men instead of the men to the work,” Ford later wrote. That slight but critical shift in thinking led to a huge leap in productivity. Average production times for a car fell from 21 days to 9 hours. The price of a Ford-made automobile fell from $950 in 1909 to $355 in 1921.†
Like any successful system, Ford’s assembly line was designed around guiding principles.
- Each worker would have one task and one task alone.
- The line itself had to be “man high” so that workers would not waste time and get fatigued by constant stooping.
- The speed of the line was calibrated to ensure that a worker was neither rushed nor left biding his time. “He must have every second necessary,” Ford wrote, “but not a singe unnecessary second.”
Guiding principles for financial planning
A system for managing wealth also needs a clear set of guiding principles. Through refinements over the years and using my 25+ years of experience with one of the top financial planning firms in Denver*, I’ve managed to trim my own set of principles down to five:
- Make your balance sheet, cash flow, and portfolio your friend, not your foe.
- Compare your finances to standards of excellence and use them to make enhancements.
- Back-test and stress-test your plan under various scenarios to further reveal strengths, weaknesses, and possibilities.
- Know what is holding you back, spurring you forward, and serving you best. This will help you have the energy, confidence and focus to support your plan.
- Be specific and proactive by identifying and implementing the actions that will result in the best permanent changes going forward.
It is worth taking some time to look at what each of these principles means in practice. I will explore each of these in future posts in the weeks to come.
Joseph J. Janiczek is the founder and CEO of Janiczek Wealth Management. This article is adapted from his book, Investing from a Position of Strength.