Pressure Test Your Financial Plan with the Five What Ifs

Something I love about financial blogging is there is always someone out there who will poke holes in any idea I put forward here. Though we try to think things through before we incorporate ideas into our plans or write about them here, we can’t possibly think of every angle — and so, helpfully, someone else usually does that for us in the comments.

Sometimes it’s just mean (Boo, trolls! But yay for there not being too many!), but most of the time the input we receive is constructive and helpful, and there have been plenty of times when we’ve revised our thinking based on great points y’all have made in response to something we put out there.

Of course, we’re especially lucky because we have this blog where we can throw things out for feedback, but not everyone has a platform like this. That doesn’t mean, however, that you can’t pressure test your own plans and ideas.

Toyota and the Five Whys

Toyota has long been known for its obsession with quality, and for kaizen, or continuous improvement. In the 1950s, Toyota developed a problem-solving technique they called the “five whys” aimed at not just finding symptoms or artifacts of problems, but actually getting to the root cause. The basic idea is that you see a problem, ask why it happened, and then ask why that thing happened and that underlying thing happened and so on, until you have your root cause identified, which you can then address fully, instead of with an incomplete bandaid solution.

Here’s an example of how it works from their website:

“Why did the robot stop?” (1) The circuit has overloaded, causing a fuse to blow.

“Why is the circuit overloaded?” (2) There was insufficient lubrication on the bearings, so they locked up.

“Why was there insufficient lubrication on the bearings?” (3) The oil pump on the robot is not circulating sufficient oil.

“Why is the pump not circulating sufficient oil?” (4) The pump intake is clogged with metal shavings.

“Why is the intake clogged with metal shavings?” (5) Because there is no filter on the pump.

They tested out different numbers of whys, and found that five was the most effective for learning what they needed to know, and so they formalized the practice around that number. Given Toyota’s long history of excellence and strong reputation, it’s clearly something that works for them.

Going Deeper With Your Questions

The five whys process isn’t perfect, and it relies heavily on the knowledge of those asking and answering the questions. It’s also possible for different people to come up with very different answers to the same questions under it. But as an exercise to pressure test processes, it’s still a strong tool.

What’s most important about the five whys is going deeper than the surface level answer. It doesn’t let you off the hook with “Eh, that won’t be a problem for me.” Or “That was just a one-time fluke.” And going deeper with your exploration can only make your thinking better and stronger — an especially good thing when that thinking is around a plan meant to withstand all that could come at it over the course of many, many decades.

Of course, when pressure testing a financial plan, the five whys might not be the right questions, because we’re not starting with a problem that needs a solution. We’re starting with a plan or a set of assumptions that feels sound, but which might benefit from some poking and prodding to be sure they hold up. In this case, the more helpful line of questioning could be the Five What Ifs.

The Five What Ifs

The idea of the five what ifs is to pressure test our plans to be sure they’re built to stand the test of time. A good place to start might be with your contingency plans. Here’s an example we might think through:

What if the markets take such a big dive that we don’t want to sell shares? We’d consider selling our house and buying a smaller one to free up cash.

What if the house won’t sell? We’d try to rent it out and live out of our (future) RV for a while.

What if there are no renters interested? We’d go to our worst case scenario spending plan and buckle down everywhere we possibly could, cutting our spending by 60+ percent.

What if that wasn’t enough? We’d try hard to hustle any way possible to make extra money. 

What if the economy was in such bad shape that there was no work available? We’d suck it up and sell some shares, though we’d sell as few as possible, keeping our spending at rock bottom levels until things picked back up.

Those what if questions are not meant to be softballs. They should be real devil’s advocate/near-doomsday scenario follow-ups. Without that level of pressure testing, it’s hard to know what you’d really do, or whether your plan stands up. Forcing us to think through these questions, for example, makes us confront the ultimate underlying question here: If things really get that bad, would we rather take out a new mortgage on our paid-off house or sell off shares at too-low prices?

Here’s another example we’ve thought through:

What if health insurance becomes unaffordable in the U.S., or the out-of-pocket maximum goes away, forcing us to budget — essentially — for infinity? We’d first try getting a catastrophic coverage policy to make sure we’re covered in accidents or serious illness, and then pay cash for preventive care and be extra diligent about eating well and getting enough exercise to stay healthy. Or we’d consider continuing to work enough to get employer-provided health coverage.

What if we needed a whole bunch of tests that weren’t covered under the catastrophic policy, but would completely bust the budget? We’d see if we could do the tests more cheaply in Mexico, or maybe India or Thailand.

What if the tests uncovered chronic illness that wasn’t covered by the catastrophic policy but required ongoing costly treatment? We’d consider moving abroad to where health care was more affordable, at least for as long as it took to treat the illness. 

What if doing all of that meant having a gap in coverage that would mean we lose eligibility for pre-existing condition coverage in the U.S.? Then I guess we’d become permanent expats. (Stupid health care system! :::shaking fist:::)

What if it wasn’t feasible to go abroad for any of this stuff for any number of reasons, and we were forced to pay the costs in the U.S.? We’d try hard to negotiate rates down and to negotiate payment plans, and we’d make sure we understood the likely effectiveness of any treatment before agreeing to it (evidence-based medicine, y’all), but ultimately we’d pay whatever it took, and deal with the consequences, even if that meant spoiling our early retirement dreams. (Though in that case we’d be extra glad we used this 401(k) rollover strategy so that our traditional retirement funds would be protected from any bankruptcy judgments.)

In this case, going deeper with the what ifs forces us to confront what we’d trade for good health, and the answer is “essentially everything.”

Testing Your Own Plans

There are lots of places we can all start with this set of exercises, and it’s beneficial to go deep on the what ifs with all aspects of your plan. Some starting points to consider, depending on your unique circumstances:

What if your portfolio tanks?

What if your pension disappears?

What if you grow tired of the lifestyle you plan to lead in retirement?

What if you withdraw too much of your portfolio early on and risk running out of money when you’re in your 60s or older?

What if your health gets worse and you can’t do the things you’d planned to do? 

What if Social Security goes away?

What if health care or health insurance costs skyrocket?

What if Medicare goes away? 

What if you can’t find renters for your rental property?

What if someone you care about needs extensive support, financial or otherwise? 

What if a spouse or partner dies? 

What if we have a period of extended “stagflation” (price inflation with stagnant markets), so your spending has to go up but without market increases? 

What if you can’t sell the home you need the proceeds from?

Some of these scenarios might be far-fetched, but they also might not be. Since none of us can see the future (or if you can, please call me!), we don’t know which “what if” scenarios might ultimately play out. But our plans can only get stronger if we think these questions through and really do the work of answering them honestly.

Just as blowing off potential concerns with the “I can always just go back to work” response leaves your long-term plan vulnerable, so does only going one level deep with your “what if” questioning.

You’re banking the whole rest of your life on your financial plan. The least you can do for yourself is make sure it’s truly solid.

How Do You Test Your Plans?

Have any of you guys gone through similar exercises to pressure test your financial plans? Or have any other tools beyond the five questions that have been helpful to you? Any thoughts this has stirred up for you, or doubts it has raised about the solvency of your plan? Or still prefer the approach of just staying flexible without pressure testing your plan components? As always, we love hearing from folks with a range of viewpoints. Let us know your thoughts in the comments!