Developing a Financial Vision: You’ve Got to See it to Achieve it
Are you in a financial rout? Trying to make heads or tails of the economy? Unsure of your financial future? Feeling like you’re robbing Peter to pay Paul? Mentally and emotionally exhausted from the gymnastics it takes to manage your monthly budget?
“At the start of 2022, 64% of the U.S. population was living paycheck to paycheck, up from 61% in December and just shy of the high of 65% in 2020, according to a LendingClub report.
Well, you are at the right place and you’re not alone. An increasing number of Americans are having difficulty planning for their financial future. Surging inflation costs and unpredictable supply lines are driving up costs for everything from eggs to houses.
However there is a silver lining! You may have finally reached the point where you need to make some changes.
Let’s face it, whether you want it or not, change is inevitable…and doing the same things financially and expecting different results is (as they say) “insane.”
In the world of construction and architecture, a new building starts with a plan - the team knows exactly what the finished building will look like before the foundation is laid. They know the dimensions of the rooms, where the windows are, and what type of brick will decorate the outside.
Life can be more messy than your typical but managing your personal finances is much the same way. You have to be intentional about architecting your financial journey. To do this one must be clear and visualize at the bare minimum the framework of the life that you want to lead. I like to start with the end in mind and reverse engineer. What say you?
Is this really necessary?
Having a financial plan will help you regulate your finances and give you an incentive to monitor money flowing in and out of your account. Establishing your vision will allow you to more easily see how your finances can work for you in both the long and short term. Your plan becomes your little birdy (subconscious) that quietly reminds you to not purchase that thing or serves as the backbone you need to say to kids, family and friends whatever the request may be.
Lets start with three foundational questions…
How do you define financial independence?
What is your ideal lifestyle?
How do you envision retirement?
Keep on reading to get to the good stuff, and you can also set out a notebook to lay your thoughts and words out on paper. Remember, This isn’t a dissertation and there are no grades or wrong answers, so “woo-sah.”
Tip: It also may help to set a timer for 10-15 minutes as you answer each question.
The Questions
How do you define financial independence?
The answer to this question will look different to everyone. It will vary based on your family background, your financial history, current financial status, and other factors.
Try to think in large buckets. This may not be about being able to buy a coffee every day (but it can be if that is important to you!)
I’m talking about things like eliminating debt, or establishing a low debt to income ratio. Owning a home or paying off your mortgage. Setting your own hours by retiring early or owning your own business.
Think carefully about this question, as the answer will help you move on to the next two questions.
What is your ideal lifestyle?
Unlike fashion, a financial lifestyle is not necessarily about what’s on-trend. That said, it isn’t static either, so remember that depending on where you are, your circumstances, or even major life events (marriage, kids, new job, new city/country) it can evolve. Out with the old and in with the new!
The concept of an “ideal lifestyle” may bring a specific image to mind. Travel to a specific place, a dream car, or a vacation home.
However, this question also goes beyond material possessions. You may have a cause or charity to which you would like to donate your time or money.
In the levels of Financial Freedom put forth by Grant Sabatier, answering this question fulfills level one - Clarity. It is this stage that allows us to create a purpose and momentum for our financial planning and the sacrifice that may be required.
As you evaluate your answers, there may be some emotions that come forward. It may seem impossible for you to achieve this lifestyle, or perhaps talking about finances has always made you nervous. Be kind to yourself! Remember this isn’t taught in schools (that’s a whole other topic :-)), so unless your parents were sticklers for this…welcome to the club #nojudgement.
When you are honest with yourself, you might have to deconstruct myths or learned money habits that aren’t actually serving you or the life you want to lead.
How do you envision retirement?
Try to think of retirement not just as the end of work, but as another phase of life. It will have unexpected challenges and expenses, and the opportunity for a lot of joy for you and your family.
An abundant retirement doesn’t have to look like high expenses. Instead, think about experiences that would fill up your soul. Would you like to live in different places periodically? Would you like to keep working on a small side business to occupy your time? What hobbies do you think will remain important to you?
Spend a moment considering what potential dependents you could have during this time. Would you like to provide partial or full support for a child’s college education? Will you need to support aging parents during early retirement?
Money (lack of it….too much of it ) can be emotional!!!
Financial planning is a hard topic to talk about, especially when you have faced financial difficulty in the past. To start, the best thing you can do is be honest with yourself about your situation.
Also, realize that there is no one-size-fits-all solution for financial planning. It's important to tailor your plan to your life while keeping your near and longer-term aspirations in mind.
Be cognizant of the fact that your ideal lifestyle may have an emotional component - it may look like having multiple years’ worth of expenses in liquid cash, so you can face the potential for financial emergencies with confidence.
“Fiscally Responsible” are the words I used to describe myself for years. This was a specific choice to combat less positive language such as “frugal aka cheap aka financial safety blanket”.
Sound familiar? #truestory
At one point in my life I had more than six figures in savings. While it made me feel secure and confident that I could manage any type of economic shock, it wasn’t truly serving my long-term plan. Chiefly because I didn’t have one in place. So that meant I latched onto ideas I heard from others, read in books or simply did things I felt made sense based on past experience with financial hardships – many from childhood. Honestly, I didn’t have a circle of resources within my family – at least that I knew of—to broach these topics.
The downside of my decisions is that I took less risk, was too conservative, and waited longer than I should have to make sizeable investments. These types of investments go beyond employee-sponsored traditional 401Ks into marketable securities or real assets (e.g. land/real estate).
The upside was that I was maxing out my 401K. This is a great start, but far from what it takes to truly achieve financial freedom. I still had much to learn - we all do!
Answering these questions today is just a single step on a long journey. Now that you have laid out your vision for the financial goals that matter to you, you can consider your next steps. This could look like setting or revising your monthly budget, working with a financial planner for the first time, or getting serious about major financial goals you have.
Regardless of what is next for you, I am right here cheering you on!