To create a financial plan that will be meaningful and fulfilling, you must be intentional in establishing your core values and statement of financial purpose.
Personal Finance is Deeply Personal
Although it’s easy to think personal finance is a quantitative, black-and-white, dollars-and-cents arena, it starts with the personal. The best plan is the one you will stick with, and that requires setting goals based on what is most meaningful to you.
Without an intentional process to identify what is meaningful, we can fall prey to setting arbitrary goals that ultimately won’t deliver happiness or contentment. By putting the time in at the beginning of the financial planning process to correctly orient your plan, you take steps to live with intention and mitigate the risk of big regrets.
Your Statement of Financial Purpose should reside at the top of your financial plan and act as the lens through which you evaluate your opportunities and decisions.
Benefits of a Statement of Financial Purpose
Benefits of creating a Statement of Financial Purpose include identifying your measure of “success,” being more likely to stick with your plan, and ensuring everyone, including your financial advisor, is on the same page.
Identifying Your Measure of Success
By creating a Statement of Financial Purpose, you identify what is most important to you and how you and your advisor should measure success. Instead of defaulting to goals like retirement at 65, reaching X amount in your portfolio, or beating some investment benchmark, you more mindfully identify your priorities. Retirement by a certain age and reaching a certain amount in your portfolio may still be part of your plan, but these things are not ends in themselves.
A Plan Worth Sticking To
The best plan is the one you will stick with. This goes for so much in life, from exercise to diet to the “right” financial plan. By identifying personal values and sticking them at the top of your plan, you’re reminded this plan is designed for you and not an out-of-the-box solution being pushed to every client who walks in the advisor’s door. The fact you have identified your money’s purpose -- and the goals and actions that follow -- lead to a plan you are much more likely to stick with.
Getting Everyone on the Same Page
Money is perennially among the top sources of stress in American households. At the same time, talking about money is somewhat of a taboo topic. This can lead to years of unspoken money “rules” running your personal finances. As an individual, it’s incredibly valuable to reflect upon your beliefs about money. And it is even more important for couples.
Taking the next step and clearly articulating your money’s purpose to your advisor allows them to work better on your behalf. To provide my best work as an advisor, I must deeply understand who my clients are, as well as their financial details. Laying out and regularly reviewing your purpose statement ensures everyone – you, your partner, and your advisor – are working towards the same goal.
Developing Your Statement of Financial Purpose
A myriad of ways exist to define your statement of financial purpose. What follows is just one method, but it's the one I ask my clients to complete as we begin to create their financial plan.
In their own time, I ask clients to set aside 30-60 minutes to respond to the “Three Questions,” popularized by George Kinder (founder of the Kinder Institute of Life Planning). If I am working with a couple, I ask each individual to reflect on these questions solo before sharing with their partner.
Question 1: Imagine you are financially secure and have enough money to take care of all your needs, now and in the future. What would you do? How would you live your life?
Question 2: You have those same financial resources, but you visit your doctor and are told you only have five to ten years left to live. You won’t be in any pain but are also not precisely sure when your time will come. What would you change in your life? How would you live your remaining years? What would you stop doing?
Question 3: Now the most challenging question. You visit your doctor again and are told you only have 24 hours left to live. What are you most proud of and happy with in the life you lived? What dreams will be left unfulfilled? What do you wish you had done?
After answering these questions, I ask clients to reflect upon their responses, identify any themes, consider big disconnects in how they are living today compared to the life crafted in their responses, and what changes come to mind. Then they are asked to create their statement of financial purpose.
Complete the following sentence: Money’s purpose in my (our) life is….
There is no “correct” statement of financial purpose. Each is entirely unique and can be as concise or expansive as desired. Below are a few examples:
- Money's purpose in our lives is to allow us to spend quality, connected time together as a family, supporting a lifestyle that satisfies our needs with opportunities to give, travel, and save.
- Money's purpose in my life is to live life fully and contribute generously.
- Money's purpose in my life is to support a calm, fulfilling, and enjoyable lifestyle.
- Money's purpose in our lives is to allow me to share experiences with my family and raise responsible, independent children.
Your Statement of Financial Purpose
If you have made it this far in this post, I’d highly encourage you to create your own statement of financial purpose. Set aside an hour to answer the three questions, then craft your purpose statement. Make this something you review on a regular basis and use to help inform your decisions, financial and otherwise.
And make sure to share it with your financial advisor!