One of my favorite financial planners recently wrote in the New York Times, “The point of money is to help make and keep you happy and fulfill the hopes and dreams that align with your own (often irrational and emotional) values.” To me, this statement is the very essence of financial planning. Personal financial planning is figuring out what makes you happy now and making educated guesses to what will make you happy later in life. Money is a tool to help you get there, but more importantly, it is the process of planning that gets to the root of who you want to be. Sounds nice to figure this out, right?
To help you in this process, I break down each component of the “point” of money.
Owning Your Values
Daily life moves quickly, and it is hard to find time to step back, soak in your life, and thoughtfully plan for the future. Sure, some couples do this but the majority do not. Before you know it, five years go by! Deciding on your values does not require a weekend retreat. You can take five minutes, turn off your phone, close out your email and sit and think about it. What matters most to you? What do you yearn for in your life that is currently lacking or deficient? For me, it is flexibility and balance. I want to live life today and make sure I setting myself up for future success. I do not want to work all the time and sacrifice picking up my kids from school. Sometimes I don’t stick to my boundaries and work creeps into family time. I feel off balance and resentful, but I can self-correct when this happens and re-set. I have to remind myself of my values and own them.
Articulating Today’s Hopes and Dreams
Plans change over time to adjust to your hopes and dreams. Planning is a process. This is where lots of people get stuck. No one wants to commit to a vision these days, especially when inertia is so much easier. Challenge yourself to keep thinking. After you decide on your values, what are your hopes and aspirations? I want to live abroad for several years, use my skills to help others, be an active part of my children’s’ lives, travel the world, feel connected, and grow old (and remain healthy) with my husband.
A recent study suggests that it is not your income level, investments or indebtedness that bring about happiness but cash. Having readily accessible cash provides a unique feeling of life satisfaction. So how much cash is enough? Close your eyes and think about a number that would make you feel satisfied. How much is that? Three months of expenses works for me, or about $30,000. When my Emergency Fund has $30,000 in it, I feel good. For some of my clients, that number is $50,000 or even $100,000. The only right answer is what feels good to you.
The path of least resistance is to do nothing but this rarely brings about greater satisfaction in life. Once you have your values, hopes and dreams, and idea of how much cash would make you happy, you are in a great place to take the leap into pro-active financial planning. The list of financial to-do’s can be long and daunting but most of it doesn’t take much time… it just takes a commitment to get it done on your part. For example, do you have an old 401(k) with a former employer that you haven’t rolled over to a rollover IRA yet? Have you put off getting life insurance or getting your estate plan done? While I find these type of to-do’s fun, most people don’t. If you need help, get it. Outsource to a financial planner, partner with a friend, do some online research about your options. Think of the satisfaction you will feel when you overcome inertia and check it off your list.
Finding out the point of money in your life can be liberating. It provides guidance to help make decisions and insight into what you can do better to align with your values. Give it a try!