Most of us have a manageable number of choices in our lives. If this is a road you take every day you would automatically make the choice between turning left or right – no effort, no stress. But when a major life event arrives that feels like a sharp turn in a new direction, status quo dissolves and suddenly you have new choices, new discussions and new responsibilities. It can feel like going from a familiar country road to…
… to an unfamiliar, confusing intersection of roads you have never been on – normal patterns are gone and the number of choices can be overwhelming. Any one choice might be a wrong turn leading far away from where you want to be. When you reach this kind of intersection you naturally want guidance - a map, directions from someone who has been there before, or a GPS –– Your GPS is programmed to set the best route from where you are to where you say you want to go – but they don’t know about the real life circumstances like road construction, detours, accidents or weather conditions and if you deviate from the programmed route a GPS can get a real attitude – Saying recalculate, recalculate - meaning you made a mistake go back and do it my way – I am the expert. Major life transition events are similar to this intersection. When you hit the complexities that come with change you want an expert guide who moves with you through all the unexpected challenges, knows where you are in the process even if you feel lost, knows when its time to stop to rest, helps you explore new possibilities without getting too far off track, helps you gather more information and reset the destination when desired, always moving at your pace and keeping you within safe territory. Without a process to manage the real life circumstances that come with this kind of change financial planning can end up sounding like the GPS with an attitude, it works much better on paper than in real life – Allow me to introduce you to the Financial Transition Planning model created specifically for life transition events
There is plenty of diversity in the 12 life events shown here. What they all have in common is the need to manage change and transition from one stage of life to another. The basic mechanics of transition are the same for everyone – regardless of age, culture, sophistications, education, gender or life experience.
All transitions have three distinct phases They all begin with an ending - some phase of life is over. They end with a new sense of normal, a new status quo with predictable patterns. The in-between time, what we call the Passage, is the transition from ‘what was’ to ‘what will be’ . The first two stages are usually more challenging than anticipated with a surprising degree of confusion and emotional turbulence that is complicated by the need to make decisions that will shape life for a long time to come. Getting to the third stage takes longer than expected. The success rate for managing life transition events is disappointing - not just for the notorious events like the lottery but for the more common events retirement, losing a spouse or getting divorced. Managing transition is tougher than it looks from the outside - taking care of the money is just one part and in many ways it’s the easy part
If its so tough but the events are common – then what’s going on The financial side is the easiest to see – it is quantifiable. The other three are qualitative, they are hard to see but they tend to drive decisions and determine the degree of success or regret. Studying the physical - the stress response - helps explain behaviors and highlights the need for specific tools and protocols. The emotions and pressures from family and friends can make for juicy media coverage but the media does not offer the solutions and we need solutions
Because the challenges listed here and many not on this list you see here are come from a combination of the physical, psychological and sociological realities of the human experience of change and transition. They impact the financial and life decisions that will shape the quality of life for a long time. Once the challenges of transition management are accepted as the norm - always present to a greater or lesser degree - the next step is not to try to find ways around them its build the process/ planning model to accommodate the challenges. For example, when a decision comes up that can’t wait until the emotional climate calms down, we need tools/protocols specifically designed to communicate important and maybe complex issues to someone with a short attention span and an inability to concentrate. The tools I use are based on an understanding of brain and stress response.
We know that change can be stressful and life events have layers and layers of change. Even welcomed events like retirement, a big promotion, and a windfall are stressful - The stress response is frequently triggered during the two early stages of transitions. This means the brain is functioning differently – during the stress response the ancient part of the brain is dominant – that’s the flight or fight part of the brain designed for surviving immediate danger - not for creativity, problem solving , broad vision or long term planning. As a result normal coping skills and rational capabilities are diminished at a time when they are needed for making life altering decisions. ( the front part of the brain is where the creative, problem solving, big picture thinking comes from)
This is the six phase process I use. You can see that the implementation phase – investing, buying and selling real estate - is fourth not first. Ideally, the focus of the first three phases is to take time to organize, gather all the information, explore ideas and help the family get use to their new situation. One of our core protocols is the Decision Free Zone – a pro-active time out from making non-essential decisions. The DFZ is usually organized in three time blocks – Now – Soon and Later, but it can be tailored to meet al kinds of situations.
Here is an example of how the DFZ was used for an NFL rookie faced with the flood of change and new range of life style choices in the first season – This illustrates only four things to do during the season – set up bank accounts – avoid debt by using either a debit or low limit credit card – set up a 12 month cash flow system to stretch his 17 paychecks over the full year – and tell friends and family to wait until the end of the season before talking to them about money.
Another highly effective tool I use with clients in transitions and with their other advisors is the Three-Headed communication overview. It is an one-page overview developed to appeal to all three of a primary learning styles – visual, auditory and kinesthetics. A properly created one-page summary cuts through confusion and allows everyone involved to ‘get ‘ that part of the plan – even if it is a complex and critical part of the plan such as cash flow. For example: After successfully selling a business owned for 30 years a couple needs to know where to the money from the sale of the business will go and how the income will work. Successfully selling a business, moving to a new state and retiring is more stressful than most would expect – both husband and wife need to know how the money will work before they can feel the same level of confidence and comfort they felt for the last ten years of the business.
This is 3Headed one-page overview of how the money is allocated into four areas of concern – income/cash flow, growth for the future, taking care of commitment to family and supporting a non profit – since this was their first time working with a team of advisors they needed to know how the team worked and what the fees will be. When the markets dropped a year after they retired this page saved everyone months of anxiety and fear – they could clearly see what had changed.
The one page cash flow overview was also essential - this was their first time drawing income from investments rather than the business When the markets crashed their planner knew they were okay but they needed to know that as well. The highlighted areas help them see their investment income will be the same for two years – and they have enough cash to cover four years of income Each time the TV announced more bad news they could go to their overview and see they were okay – they had could hang on waiting for the crisis to be over before making big changes.
My goal is to minimize the confusion and challenges – I can’t eliminate all of it. But I can quiet things down and create a safe space to manage a life transition with one great decision at a time. The best time to start financial transitions planning is when a life event first occurs or is first identified – waiting until ‘things calm down’ may feel intuitive but a wide range of regrettable decisions may be made some may be impossible to unwind. This intersection has only four choices rather than dozens and the rotary is like our DFZ – it provides a safe place to keep moving until you know which of the four choices is best.
