At XY Planning Network, our members are always going above and beyond to promote financial education, literacy, and empowerment. They're so much more than just financial planners -- and are passionate about helping everyone, not just their own clients.
That's why we're thrilled to have the opportunity to share the latest work of Matt Becker. Matt runs Mom and Dad Money, a fee-only financial planning practice dedicated to helping new parents build happy families by making money simple. He also just released a book this month, called The New Parents' Guide to Financial Independence.
It's a step-by-step guide through investing and creating your own financial independence -- and Matt was generous enough to share a chapter of the book with us today. Enjoy the full chapter on "What Does Financial Independence Look Like to You?" below!
Financial independence allows you to think about what you want out of life now instead of having to wait 30-40 years; that’s why I love this idea so much! It allows you to prioritize the things that are important to you instead of following a predetermined path.
BUT there’s a big question here that still needs to be asked:
What do you want out of life?
This little question can be incredibly difficult to answer. It’s actually not a question we’re asked all that often and, without a little guidance, it can be tough to specify a goal that enables us to work towards something concrete.
Here is an 8-step process that takes this big vague question and turns it into specific steps you can follow one at a time to get your answer.
Step 1: Visualize a Happy Life
Take 15-30 minutes to sit by yourself, uninterrupted, and imagine that in the near future you’re living a happy life. Not 40 years down the road when you’re old and gray, but a few years from now, maybe just five years down the line.
- Where are you? In the city or in the country? In a house or an apartment? What does the surrounding neighborhood look like?
- What does your family-life look like? Are you married? Dating? Do you have children? Have you adopted? What do you do together for fun? What does a regular day in your house look like?
- Who are your friends? How often do you see them? What kinds of activities do you do together?
- What are you doing for work? What kinds of projects are you involved in? How is your work helping to make the world a better place? How much time do you spend working?
- What are your hobbies? How do you relax? What keeps you energized and excited? Could any of these side projects turn into a business venture?
Let your mind wander as you ask yourself these questions. Don’t set limits or label anything as “unrealistic”. Think only of what a happy life looks like to you.
Step 2: Visualize and Write Down
A couple of days later, after you’ve let those thoughts settle in and have gone back to your regular routine, repeat the exact same process again. This time, write things down as you think of them. Anything that’s part of the picture you form in your head should be put down on paper.
This is the list that will eventually turn into goals.
Step 3: Prioritize
Now it’s time to put this list into some kind of priority order. You need some way of determining which goals are most important and worth working towards first.
So number each item or group them as high, medium, and low priorities; whatever works best to help you get some sense of which parts of your vision are most important to you.
Step 4: Communicate with Your Spouse/Partner
Ideally, your spouse or partner has gone through the first three steps as well and now the two of you can come together and talk about it. If you’re a single parent with a budding or working teenager, you should consider bringing them in on this discussion.
This is a really fun process. After all, you’re talking about the life you want to build together and all the possibilities involved, and that’s exciting! If at any point this conversation starts to feel like a chore, drop it and come back another day whenever everyone is in the mood.
But it can also be a tough process. No matter how much you love each other, you’re still different people and it’s only natural for you to have at least slightly different ideas for what you want out of life. And those differences can cause some conflict.
So here’s how I would approach this, at least on your first go-around:
- Focus first on anything you have in common. These will be great goals to prioritize first.
- For any goal that your spouse or partner has and you don’t, just try to hear why it’s important to them and leave it at that. Listening and understanding is the first step.
- You will be re-visiting this process again in the future, so if there are goals or plans you really disagree on I would simply leave it for now. Focus on the priorities you both think are important as a way to get started.
Step 5: Acknowledge What Isn't on Your List
This is one of my favorite steps.
It’s obvious that it is important to set priorities, but it is just as helpful to determine the things that ARE NOT important to you. By acknowledging that something isn’t important, you can intentionally take time, money and energy away from it so that you have more of those resources to focus on things you DO care about.
For a personal example, about a year ago I finally admitted to myself that I no longer cared about sports as much as I used to (may sound silly, but this was a hard thing to admit). That meant that I no longer felt like I needed ESPN, which meant that I could cut cable without really missing anything I truly valued.
That freed up some money each month that we now put towards travel, making it easier to visit my family that lives 1,500 miles away. I never would have been able to do it if I hadn’t intentionally acknowledged that watching ESPN was no longer part of my life vision.
Shifting expenses away from things you DIDN’T envision as part of your ideal life will give you more money to put towards the things you DID envision.
Step 6: Turn Priorities into SMART Goals
SMART goals are goals with a clear path that makes it both easier and more likely to reach them. And SMART is really just an acronym that says that any good goal has the following characteristics:
Basically, it’s a way of taking a vague goal and turning it into a clear one so you can take real action to accomplish it.
For example, a vague goal might sound something like this: “I want to buy a house in a few years”.
That goal is just isn’t specific enough. There’s no way to know exactly how to get started and there’s no way to clearly measure your progress along the way.
But you could turn it into a SMART goal by re-wording it to something like this: “I want to have $30,000 in a savings account for a down-payment on a house in 5 years”.
Now you have a specific dollar amount as your target, a specific timeline, a specific purpose, and a specific place you’re going to save the money. You can work backwards from there to figure out exactly how much you need to be saving AND you can figure out exactly what kind of progress you’re making along the way.
So, take some of your biggest priorities and do your best to turn them into SMART goals. That will help you start to…
Step 7: Take Action
You can do all the planning in the world, but until you start taking action none of it will mean anything.
And the truth is that this is usually the scariest step. Taking action opens the possibility of making all kinds of embarrassing mistakes, and the fear of making those mistakes keeps people from taking action.
So let me spoil the surprise: you WILL make mistakes. We all do. I’ve made plenty of them and have learned from every one: sometimes not the first time either. That’s right, I have made the same mistake more than once. And believe me, the lesson will eventually stick.
So the best you can do is acknowledge that mistakes will happen, take action anyways, and when you do make a mistake simply do your best to learn from it and keep moving forward.
And here’s the good news for you: you’re not alone here. The rest of this guide is dedicated to helping you take these actions and make fewer mistakes.
Step 8: Regularly Re-Evaluate
This is not a one-time process. Your life will change. Your goals will change. And it’s important to acknowledge those changes so that you’re always working towards your current vision of your ideal life.
Once every year or every 6 months, re-visit this process and update your vision.
So, What Does Financial Independence Look Like to You?
You might be wondering what any of this has to do with investing. The truth is that the vision you come up with above is the key to your financial success.
A clear idea for what you want out of life will allow you to use your money purposefully in order to get it.
Once that vision is clear, all it takes is a solid plan.