Why Financial Planning IS Like Rocket Science

That title is not clickbait. I am dead serious and will show you why. My resume is a bit different from most people in financial planning. It includes “Rocket Scientist” (or the equivalent). Yes, it makes for a good conversation starter, but I really haven’t stopped being an engineer. Engineering is the process of solving a problem using known science and math and within a set time and budget. Funny how that disqualifies every government program. But I digress.

Making a rocket design or financial plan that might work isn’t a good fit for an engineer. We have to know it will work. We’ll get back to that.

The commonality between rocket science and financial planning is called the “second-order effect”. This may be an obscure mathematical term to you, but it is usually the difference between success and failure in both worlds. It means that the small things count more than you think. For a rocket, the big fire at the back end is where most people focus their attention. Yet small vibrations can build up and throw it off course. Small inconsistencies in materials can tear it apart. In money matters, small increments of loss over time can turn wealth into a pittance. On the other hand, consistent growth over time results in a financial plan we know works.

Or if you are hoping for a big explosion in either world, ignore these effects. You’ll get one.

What are the big things that you are focused on? House, car, student loan, the market? But what are the little things? Are you paying just to use money, handing over interest and fees to others? Of course, taxes are a big thing, but what about taxes that eat away the growth you need? Are you paying mutual fund management fees, that might grow your money? Are your savings being eroded by market volatility? In what kind of vessel do you store your money? Does it have leaks? Or does it benefit you over time?

Take a hard look at every dollar that goes out every month, every year. How much are you being drained, knowingly or not? On the other hand, constructively looking at your every purchase as an opportunity to do better—make a return—works well. Treating your money like rocket fuel.

In the field I specialize in, Privatized Banking, I proudly do financial engineering. I know it will work. I don’t do hope.

Everything that works in your life, your car, smartphone, computer, dishwasher, air travel, works because it was engineered. Not hoped for. Find an engineer to design your money system.

You’ll sleep better.