5.5 MIN READ
There is always room for change or improvement when it comes to your finances. But what you really should be asking yourself is this: Am I looking to optimize my current situation, or am I looking for tremendous improvement?
The vast majority of what passes for financial advice is directed at optimization instead of drastic improvement. Any tip, hint, or singular transaction is just a tweak on your financial situation and should be treated as such.
That’s not to say you have to be in poor shape to experience drastic improvement. You don’t.
In fact, for most people, simply understanding their current situation – what they own, what they make, what they spend, and what they owe – can be a radical improvement. This type of realization helps you grasp the bigger picture rather than spending energy on some minor issue.
Now, let’s take a deeper dive of how you can more accurately answer our number one financial question based on your needs.
Define the Payoff You Need
- Assess where you are today
- Do you have so much money that you will never want for anything? If so, you might be wondering why you are spending any time on this at all. I call this the “Lovey Syndrome” from Lovey Howell on Gilligan’s Island. Even her husband, Thurston Howell III always made sure she had everything she needed at every moment!
- Alternatively, do you have concerns that you may not be able to do all the things you want in life? Is it possible your plans, which seem entirely realistic today, will not be realized due to the financial decisions you make moving forward? This is the more common case, though we never like to admit it. And while it is hard to ask for help in our finances, it can be the game-changer that allows us to do everything we want in life.
- So now that you know where you stand, what defines success from here?
- If you are in the Lovey syndrome and still want to spend time on your finances, your focus will be on optimizing your financial life. It’s no longer about trying to “make it” because you’re already there.
- On the other hand, if you are concerned about enjoying the rest of your life by making good financial decisions, then you have something truly at stake – the happiness that comes with living a truly fulfilled life. Money doesn’t provide that, but it sure helps.
The takeaway? If you’re in the latter of our two scenarios, focusing on enjoying the rest of your life by making smart financial decisions, then the payoff you’re seeking is much more valuable. It’s the difference between accomplishing your financial goals vs. living off your children (or the government). This is a much more serious and important effort than simply trying to “beat the markets.” It’s supporting your fullest possible life.
Get Realistic About the Willpower This Improvement Takes
There’s a reason we put off dealing with our finances. It’s a mundane task that can drain our energy rapidly.
In school, we’re never truly taught how to deal with money. On the home front, parents don’t tend to share their financial success or burdens, much less the strategies they used to survive. And of course, it can seem messy, embarrassing or like you’re bragging, so we don’t speak with our friends about such things.
As a result, all we know is what comes from between our ears. Our information is insulated from the successful strategies others may have used, and we are left to navigate our financial world with only what we develop internally.
All of that said, there are several things on your side when looking at the big picture.
- There is no financial emergency.Financial challenges tend to evolve over time and their solutions also take time to determine and implement. If you are feeling rushed into a decision, take it as a sign that something has gone sideways. Step back and reevaluate when you feel renewed energy for the topic.
- Solutions are specific to who you are and what you want.It’s ok if someone else in a similar situation chose a solution that makes you uncomfortable. There are many solutions to any financial problem. The key is to find the path that is right for you, given your desires and willingness to take on risk.
- The simpler path is the better path.The financial industry is designed to work against this truth and the sooner you come to accept this fact, the sooner you will be able to make better decisions for yourself. What has passed for financial “advice” in past decades was really just a way to sell financial products. Need to invest, pay a commission. Need insurance, pay a surrender charge. The more complicated the product, the higher the pay for the advisor and his firm.
- However, if you simply need someone to tell you what you should do, be wary of who you ask because most financial professionals are paid based on the advice they give.More and more, this is no longer the case. Though the words fiduciary, fee-only, and others are still constantly changing in their meaning, you have a right to know how your advisor (and his firm) gets paid. Knowing this will reveal the biases in the advice you receive.
Understand the Risk of What You Do Not Know
Motivations of your advisor
As alluded to above, it’s not enough to simply know how your advisor gets paid. You must also know how his firm gets paid. As an employee of a larger company, the advisor’s motivations must always begin with pleasing his bosses. This can lead him to give advice to drive the company in a direction it wants to go rather than driving you in a direction you want to go.
This is why I’ve chosen to work for myself as an independent advisor with no parent company. I can simply tell my clients what I think they should do and why. I do not have to be concerned with my company meeting quarterly earnings expectations or my boss winning a trip to Hawaii. I only have to be concerned with the well-being of my clients so they will continue to be my clients throughout our lives.
Laws and regulations that connect with your possible strategies
All those letters after your advisor’s name may be important, or they may be sales designations. In either case, they represent a significant education on financial products, strategies, laws and tax effects. It is one thing if you are confident you can read IRS regulations and fully understand how they will affect your taxes, but most of us need help.
In addition, these laws are constantly changing. While attempting to making the best decisions under today’s legal environment, we must consider how the tax code and other regulations may evolve. For example, how we save for retirement will determine how we will be taxed in the future. But the laws around those taxes, including tax rates and tax reach, are constantly evolving. It’s important to plan today, as we save, for how we will be taxed in the future
Strategies others have pursued in similar situations to yours
Working with someone who has clients similar to you can be a great benefit. You will likely never be in an entirely unique financial situation (though you will view it through your unique lens) and understanding what others have done before can help with your confidence and decision-making process.
Conclusion: Back to the Question at Hand
As I’m sure is clear, people who want clarity in their finances so they can better control their decisions will ultimately drive financial success. This allows them to live intentionally, fulfilling whatever life they wish to have.
Because being a Lovey is so boring.
So, now answer me this, which are you, a Lovey or simply someone who wants to know what they can achieve in life and how?
About the Author
Joe Morgan is a financial planner who works with people that need to reduce their financial anxiety. By providing clarity on their situation, he enables his clients to gain control of their finances allowing them to pursue their life's intentions. He charges a flat fee for Financial Planning services.
Did you know XYPN advisors provide virtual services? They can work with clients in any state! View Eric's Find an Advisor profile.