Why a 100% Successful Financial Plan Isn’t Always The Goal

Most financial planners use a Monte Carlo analysis to determine the success of a financial plan.

A Monte Carlo analysis runs 10,000 different random return sequences to predict your future financial outcome. It takes all of the data within a financial plan such as income, expenses, investments, and liabilities, and produces a score between 0 and 100 reflecting whether your plan is successful and you’ll have enough money to live the life you want.

It’s easy to aim for a 100% because that means, even with terrible years in the markets, you’ll have enough money to live. It means you have reached ultimate financial freedom, right? Well, maybe but maybe not…

Achieving a 100% Monte Carlo analysis score may actually mean you’re holding back from spending on things that make you happy or holding back on achieving goals you have but are afraid to reach for because of the fear of not having “enough”. If managed well, a score of 60% may be all you need to live the life you truly want.

Understanding what your ideal life looks like and what financial and personal goals you have is part living “rich beyond money”. At Freedom Family Office, we encourage our clients to identify their goals today, create stretch goals beyond what they may think is possible, and get clarity on what makes them happy first and foremost. Then, we build the financial plan and utilize the Monte Carol analysis to inform us what changes, if any, need to be made to achieve their personal and financial goals even if it means scoring under 100%.

If you want to see what your Monte Carlo analysis score is, contact AskFreedom@freedomfamilyoffice.com