Managing money is a lot like dieting. It all works in theory, but it’s the application that’s so difficult.
When we begin saving, budgeting, or investing, it’s often to overcome pain or frustration.
Then, if we fail, the disappointment is worse than the original discomfort we were trying to overcome.
Our parents, friends, neighbors, coworkers, and the media, surround us with messages that turn money into a measure of self-worth and perceived happiness.
These powerful messages lead to misguided emotions—fear, anger, resentment, and frustration—that revolve around money. However, it’s common to ignore these feelings and focuses on interest rates, stocks, bonds, and taxes. Like money, these are simply tools to get you where you want to be, and should not be the end goal.
Happiness and fulfillment should be the goal when dealing with our money, but we often lose sight of that.
Financial planning often begins with a specific problem. It might start when struggling to pay your bills, or after changing jobs realizing you need to do something with your retirement plan. It might be that retirement is on the horizon and it’s time to get things in order. And sometimes it begins with an intimidating notice from the IRS.
When financial planning begins with a specific problem, the focus naturally revolves around core financial planning topics like stocks, bonds, interest rates, taxes and retirement plans. When there is a problem, it only makes sense to get to the point and solve it.
The problem with this approach is that it is reactionary and misses the point of financial planning—quality of life.
A better approach is to be proactive instead of reactive. This lets you change your approach to finances from problem solving, to lifestyle design.
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Instead of beginning with mutual funds and tax rates, consider planning your ideal life. You can do this through goal setting or visualization exercises, but it doesn’t have to be very complicated.
One approach is to envision your perfect day. Think about every aspect of that perfect day and what it would be like. The more detail you include, the better. Here are some questions to answer about your perfect day.
- Where are you?
- Who, if anyone, is around you?
- What are you doing?
- What is the weather like?
- Are you active or relaxing?
- What are you wearing?
- What are you driving?
- What do you see?
These are only examples to get you thinking in the right direction, and depending on your personality, there are different ways to do this. Some people create storyboards by cutting out photos from magazines. Others open a word processor and start typing, while some like to meditate.
It’s tempting to assume your vision is the life you need to create. This may or may not be the case. For example, I had a client envision being alone at her home, that was unusually clean.
After a lot of brainstorming, she discovered she was longing for short breaks. She didn’t want to be without her children, because she loved being a stay at home mom, but she needed the occasional break. They budgeted for one day a week of child care and a housekeeper and it made a huge difference for the entire family.
This is what financial planning is about. It’s about finding what will make you most happy and then using tools like stocks, bonds, and budgeting to make that lifestyle happen. When planning your finances, remember that money is only a tool to get the stuff we want and need, but accumulating it is not the end goal.