The beginning of a new year is often a time to reflect on the events of the past year and to formulate
strategy for the year ahead. This is obvious in the media’s attention to matters of personal finance. The
financial press, television and radio are inundated with stories about new rules and limits, with advice on
how to best take advantage of these changes.
The problem with all of this attention is its obsession with detail. Detail is important, but too much focus
there can lead to problems with serious consequences. As with most everything financial, the importance
of detail is relative, not absolute. The question is not: “Should I be concerned with detail?” The question
is: “Where should my limited resources — time, energy, money, worry — be spent?”
In my experience, most of what Americans believe to be true about financial management and investing is
learned from mass media sources, including, unfortunately, advertising. Media topics tend to be highly
focused and specific, such as whether it is smarter to save money using a traditional IRA or a Roth, or
which investment security performed the best over the past year.
This can lead to a preoccupation with detail that can be easily explained in the limited space of a
magazine column or program segment, but which is mostly irrelevant to your ultimate financial success.
See the big picture
This problem is especially common in the complex world of federal compensation, benefits and retirement
rules. There is lots of attention to explaining these rules and trying to provide guidance for working them
to your advantage. But often there is little effort to put the advice into the context of the big financial
So, some expert can find an advantage in contributing to a Roth IRA instead of the traditional kind. What
does this advantage mean to you? How important is it to achieving your overall goals?
To be successful financially, you need to stay focused on the things that matter — things that will make a
difference in the long run.
A concept I use with my clients is what I call planning relevance. Planning relevance is a relative measure
of the likely impact that a planning factor, such as a savings contribution or rate of return, will have on
your financial life. Planning relevance indicates the relative importance of an event in the grand scheme of
A key to successful financial planning and management is to focus your energy, resources and worry on
factors that are important to your ultimate success. I define financial success as meeting your reasonable
lifetime financial goals.
Recognize the trivial
I meet too many federal workers who are overly concerned about details and rules, while ignoring
opportunities and threats that will make or break their financial futures. Worrying about whether to
contribute savings first to the TSP or an IRA is an example of a trivial concern. The important issue is that
the money gets saved in the first place. Where is usually incidental in the grand scheme of a financial
I suggest you consider the planning relevance of anything financial about which you may be concerned or
considering for investment. In general, the larger the dollar amount of the event or factor in question, the
greater the planning relevance. Similarly the longer the duration of a series of events, the greater the
How to weigh the relevance
A one-time withdrawal of $50,000 from a portfolio of $500,000 — 10 percent — will have a fairly high
planning relevance, while a single $1,000 withdrawal will have a fairly low planning relevance. A series of
$1,000 annual withdrawals from this portfolio lasting 30 or 40 years, particularly if adjusted for inflation,
would have a moderately high planning relevance, since, although the amount is small, it is repeated over
a long duration and totals $30,000 or $40,000.
The exact amount of planning relevance isn’t important — what’s important is prioritizing your efforts and
directing your attention to the more significant financial factors.
The first step in planning ahead financially, whether for the coming year or the next 40 years, is to identify
and prioritize the factors that will have the greatest impact on the end results.
n my experience, if you make a list of everything you might consider paying attention to, and then rank
them from most to least important, the top five or six factors will probably account for about 99 percent of
what will determine your ultimate success or failure.
Written by Mike Miles
For the Federal Times
Publication January 15, 2007