Explore the Concept of the Flywheel Effect in Financial Planning

financial planning

A contestant in America’s Got Talent called Nightbirde once said that one shouldn’t wait until everything is all right before they decide to be happy.

That may be true. Sometimes it seems humans wait for that one magical pivotal moment to occur; and when it doesn’t come, people become frustrated and disappointed. They start believing they are failing with their endeavors or even with their lives.

In reality, however, success may not come overnight or with a flick of a finger. It can be an accumulation of little but consistent actions. This is the concept of the Flywheel Effect.

What Is the Flywheel Effect?

None other than the author of Good to Great Jim Collins can explain the concept behind the Flywheel Effect. He described it succinctly this way:

Think of yourself as perhaps the guardian or the mover of a massive flywheel that weighs thousands of pounds. You are gifted with Hercules-like strength, but considering the weight, trying to turn it takes a lot of effort.

Thus, on the first try, it seems the wheel isn’t budging at all. However, as this is your job (probably the only one), you devote your entire time to it. You turn and then turn some more until you complete one cycle. Great!

Now, you do the same thing repeatedly until such that time every turn becomes easier and faster. Then you hit a breakthrough—a time when the wheel gains momentum that turning it no longer feels like hard work.

Then imagine that someone asks you, “What is the exact thing you do or the trigger that causes it to turn fast?” This question is tricky since you’ll never really know which of those nth turns contributed to the big change.

But you do know one thing: the breakthrough was simply a culmination of all the turns you made. In other words, it is a by-product of a more organic process.

How Does This Apply in Financial Planning?

computing finances

The Flywheel effect can be useful not only from a behavioral perspective but also in financial education and support. In fact, Resource Planning Group, a certified financial planner, has succeeded in creating a version of it.

How does this work? First, you go back to the principles of the Flywheel Effect:

  • The consequences you will experience later on are the product of the daily, routine decisions you make. For example, if you struggle to finance your retirement, it could be because you didn’t consider investing or saving money every month for this period in your life.
  • The Flywheel effect doesn’t discriminate events; every one of them contributes to the outcome. This implies that your decisions and actions in non-investment areas can still affect your financial security or well-being at any point in your life. Take, for example, training. Not getting enough updated IT literacy may increase your chances of being displaced as businesses embrace automation, analytics, and other tech types.

With these ideas in mind, the Flywheel Effect from a financial perspective could mean the following:

  • Financial planning should not focus on only one point in your life, like retirement. It should cover a lot of life events, including marriage, children, and even death. What’s more, every financial decision made at each stage will also impact the others. Investing during the early marriage years may help ensure enough funding for children’s needs once they’re ready to go to college.
  • Just like a wheel, your life isn’t static but dynamic. Your financial needs will change over time. When you’re single, probably, one of your biggest concerns is how to afford a mortgage or avoid getting trapped in consumer debt. When you’re married, you start thinking about how to grow your finances to sustain the family’s needs, including children’s education. As you grow older, you need to begin thinking about retirement and estate planning.
  • A Flywheel Effect program can help identify events, actions, or behaviors that will bring you closer to your goal. Meanwhile, if you’re still far from your objectives, the same program can assist you in bringing you closer to them. It may even help you identify the best goals to set for yourself.

There’s no doubt that life will have its eureka moments, but waiting for them to occur can result in significant opportunity costs that one may regret later.

The Flywheel Effect and Nightbirde teach people that, instead of patiently waiting, they can start turning that wheel into its axle and allow every action to contribute to breakthroughs that will make it easier for them to reach their goals or objectives.

Share this

About Carousel News

We're here to fuel your passion for innovation and keep you ahead of the curve. Dive into our captivating articles, where we explore the latest advancements in technology, share expert insights on digital strategies, and uncover business trends shaping the future.

Subscribe to our newsletter

    Scroll to Top