3 Questions to Change the Way You See Your Finances

Jan 4

BEFORE YOU SET FINANCIAL GOALS...

When I start with working with someone, they’re usually pretty quick to mention some of the their financial “goals” and want to to move quickly to strategies.

Common things people tell me:

Follow a budget (though that's not really a goal)
Establish an adequate emergency fund
Get out of debt
Buy a house
Max out IRA contributions
Retire early or become financially independent

As a financial planner, I've had the opportunity to observe several people go through cycles of trying to set and achieve big financial goals. When they succeed, there's a level of elation and accomplishment that's hard to describe. When it doesn't happen due to lack of action, the pain can be hard to watch.

In the end, I think the main differentiator between those who have success in reaching their financial goals and those who don’t comes down to something that happens (or doesn't happen) before any goals are set.

Before you set any financial goals, I'd like to invite you to try this first.

FIGURE OUT YOUR "WHY"

Figure out your why. Why do you want to get out of debt? Why do you want an emergency fund? Why do you want to cut spending or increase savings? Why do you want to invest?

Any of these financial goals you might have, they're not really...financial. What do I mean by that? There's a non-financial reason behind why you want money for something. Usually, it's to uphold a value or have an experience. "I want to have an emergency fund so my family feels secure." "I want to build wealth so that I can give money to charities that are important to me." "I want to invest for a dream trip to Australia."

To me, all financial planning is really just life planning. Money is a means to and end. It’s a tool to help you live a life you love and accomplish what's important to you.

In theory, if you can figure out what you really want to experience in life, then your priorities will become more clear, and so will the financial actions you need to take today.

While this idea is obviously important, it's kind of abstract. I used to have a hard time communicating this idea to clients. I wanted to show them that they would be more likely to have financial success if they clarified their motivation behind wanting to build wealth.

Luckily, I came across an exercise that I feel like does the trick quite nicely. And it's as simple as asking yourself three questions.

THE THREE MOST IMPORTANT QUESTIONS IN YOUR FINANCIAL PLAN

Before I give them to you, let it be known that I am no philosopher. I didn't come up with these brilliant questions, though I have used them, watching them bring substantial improvement to my own financial plan and those of others. These questions come from a man named George Kinder, who started what I guess you could call the "life planning approach" to personal finance.

These three sequential questions are designed to be incredibly powerful in helping you cut right to the heart of what your values and priorities really are.

If you actually take 20 minutes of undivided attention to ponder and write down your answers to these questions, it could change your life (dramatic, I know). At the very least, it could change the way you set your financial goals!

Here the questions:

QUESTION #1:

Imagine that you are financially secure, that you have enough money to take care of your needs, now and in the future. The question is, how would you live your life? What would you do with the money? Would you change anything? Let yourself go. Don't hold back your dreams. Describe a life that is complete, that is richly yours.

This is the fun question! It's the classic "what would you do if you won the lottery?" question. Follow the instructions to a "T". Try to imagine yourself there, and don't let the thought override you that "this wouldn't ever actually happen." Money is no object - what would that look like? Like it says above, "let yourself go."

And write until you have no more left to say.

QUESTION #2:

This time, you visit your doctor who tells you that you have five to ten years left to live. The good part is that you won't ever feel sick. The bad news is that you will have no notice of the moment of your death. What will you do in the time you have remaining to live? Will you change your life, and how will you do it?

This question puts some parameters on the unlimited dreaming you did with the first question. It forces you into a "end-in-sight" situation: five to ten years is long enough to do some planning and make sure some bucket list items get checked off, but short enough to make you realize that your current financial trajectory may not be taking you toward some things you really want to experience or do in life.

Again, write down whatever comes to mind until you have no more left to say.

QUESTION #3:

This time, your doctor shocks you with the news that you have only one day left to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What dreams will be left unfulfilled? What do I wish I had finished or had been? What do I wish I had done? What did I miss?

Woah. Heavy stuff. It's intended to be. After the first two questions, which make us "dream big" and focus on the things we haven't done yet or aren't planning intentionally enough to achieve, this question will bring you right up to heaven's gates.

Who and what are most important to you? Are there changes you could make that would immediately make you happier now?

GET CLARITY

If you want to surprise yourself with clarity about what you really want, take the time to write down your answers to these three powerful questions.

Sincerely answering these questions is the first step to thinking correctly about your money, because it gets you thinking about everything important that's not money - as paradoxical as that sounds for an exercise made for setting financial goals.

It's because money isn't the actual be-all, end-all of life. We don't seek to build wealth just to have wealth. We seek to build wealth because we can put our wealth to valuable use by having meaningful experiences and bringing about more good in the world - whatever that means to you.

I've watched people in my office have the biggest epiphanies through this exercise. Sometimes it's surprising when you realize that something you thought was really important to you isn't as important as you thought, or that something you think you've given up on is actually still really important to you.

These three questions are impressively effective at providing clarity. They make clear how you want to balance the trade-offs between spending today and setting aside for the future. It will make your goals prioritize themselves.

From my side of the table, it allows me to see what "financial" goals are most important to my clients - so I can design a financial and investing plan to help them achieve the most important things first.

I give out a lot of advice as a financial planner. But if there is one thing I hope you do, it's to sit down for 20-30 minutes to actually write down your answers to these three questions.

It just might change the way you view the role of money in your life, and clarify what you really want to do in your future.

Don’t call it a dream, call it a plan!