In the world of personal finance, there's a lot of emphasis on creating a plan and sticking to it. But real life doesn't follow a script. It's messy, unpredictable, and ever-evolving. Rigidity is the enemy when life's only constant is change. So instead of forcing your finances into an inflexible box, why not use a simple decision-making framework that embraces uncertainty? Enter the OODA Loop - Observe, Orient, Decide, Act.
Coming out of the lessons learned in the Korean War’s air combat US Air Force’s COL John Boyd coined the OODA Loop to better combat enemies in an ever changing and highly dynamic air-to-air battlefield. The idea is that in any given situation, you have to observe what's happening, orient yourself to that situation, make a decision based on that orientation, and then act on that decision. It's a continual process of updating and redirecting based on new information. Since its development it’s been leveraged for successful outcomes from the battlefield to cybersecurity to business strategy.
When it comes to financial planning, the OODA Loop emphasizes the continual updating and redirection of your plan as things around you change. Real life doesn't fit on a spreadsheet, and things rarely go according to plan. By using the OODA Loop, you can reevaluate your situation and make new decisions based on new information. If this sounds familiar to our Agile Financial Planning methodology, you’d be right. That’s on purpose!
Observe. Before mapping out a new course, you have to honestly assess your current situation. What's your income, expenses, debts and assets? Don't judge, just observe. Get a clear-eyed view of where you truly stand financially right now.
Orient. Now orient your observations towards your bigger life vision and values. What are your goals - retirement, debt freedom, entrepreneurship? And just as crucially, what's your "why" behind those goals? Your motivation to achieve that perfect future moment with family, freedom, impact or whatever you've defined as your purpose. Let your idealized reality be your North Star. You also need to consider any external factors that could impact your financial situation, such as economic conditions or changes in your personal life.
Decide. With full context of your present circumstances and future aspirations, decide the actions to realign your finances with your life plan. This could mean budget tweaks, new investment strategies, taking career risks, etc. Don't get paralyzed overthinking it - trust that the next right decision will reveal itself when viewed through the lens of your life vision.
Act. Final step is to act on your decision. All the best knowledge in the world doesn’t amount to anything without taking action. This means implementing your new budget, making changes to your investment portfolio, or taking steps to pay off debt. It's important to take action quickly, before your situation changes again.
Once you've acted on your decision, you need to go back to the beginning and observe again. This is because where you are isn't going to be where the spreadsheet said you would be. We live in the real world, and things are more complicated than a straight line. And because we are real people that change over time, your direction, your goal, your destination have changed too.
By continually cycling through the OODA Loop, you can ensure that your financial plan stays up-to-date and relevant to your current situation. This is especially important because financial planning is a lifelong process. You don't just create a plan and then forget about it. You need to continually evaluate your situation and make changes as needed. The OODA Loop process empowers you to turn life's unpredictability into an advantage. There's no judgment, stress or panic when your finances inevitably diverge from the original plan. You expected disruptions along the way, and simply treat it as a new reference point to observe, orient, decide and act from once again.
The destination may evolve, but staying locked on your life's trajectory is the ultimate investment strategy. Let your financial plan be the OODA Loop - embracing the inherent forks on the trail as an opportunity to keep re-committing to what truly matters.