Michael F. Kay
Jan. 22, 2019
During parts 1 and 2 of this series, I explored the steps necessary to create financial sanity in your life. To reiterate the foundational issues, let me first go back to the basics.
In order to create financial “sanity”, it is important to first define what, in this sense, “sanity” is. I proffer the following definition:
Financial Sanity is attained when one is living within one’s financial means and according to a well-conceived, written, and tested plan of action. It must also consider the impact of reasonable possibilities that might impact the successful outcome of the plan.
In applying this definition, you can discern that several very important steps are involved in attaining financial sanity. You must have:
1. A clear understanding of your situation.
2. Goals that are synergistic to your values.
3. Examined the specific possibilities that pose a threat to your success.
4. A written game-plan.
The first part deals with understanding your Net Worth Statement. The second installment helps you get a handle on your Dynamic Spending Plan. I consider it “Dynamic” because it begins with a clear target of Net Worth builders that are based on your goals, your values, and helping you move strongly towards your preferred future.
This third part that I’ll discuss here deals with goal setting and the threats that can either interfere, delay, or capsize your life plans.
It is common for most people to look at their life and make decisions that are general in nature. For example, “I want to retire when I am 67.” Or “I want to send my kids to college.” Or “I don’t want to run out of money.”
These are all great and important goals. But to add dynamism to your goal-setting, consider getting more specific.
For example, if you want to retire at age 67, be ready to answer why that is important and what it means to your life satisfaction.
If you want to send your kids to college, be ready to get even more granular. Are you willing to pay for 100% of the cost of ANY college, private or public? Or do you want your children to have skin in the game? Why or why not?
Not running out of money is one of the goals I hear most. A great goal, but what does it really mean? Make sure you define the exact specificities of what your goals look like.
Let’s drill down.
What lifestyle do you wish to maintain? Are you willing to deny yourself “rewards” or certain leisure today in order to have a more lavish or comfortable lifestyle in the future?
These are some of the questions that require some deep consideration. But they can also drive some people to throw their hands up in despair, giving up on acting in their own best interest; mostly out of frustration and fear.
If you are married or partnered, the goals of your significant other needs to be heard and factored into your plan so you’re on the same page in regards to what needs to be done to reach your collective goals.
The ability to communicate about those goals is a crucial ingredient to finding common ground. For some, the act of talking about money is the equivalent to open warfare. For others, it’s ground not tread upon.
Here’s how to do it right: Begin with asking the important questions and listening deeply to your partner. Make sure s/he feels heard and respected. Gaining insight and understanding is the first step to co-creating meaningful goals based on your shared values.
The idea of threats is a tender subject. Many people are great at worrying, while others have mastered the art of avoidance. Neither of these tendencies is beneficial in attaining satisfaction. But threats exist and spotting them in advance is vital. Here are some common threats:
1. Your health
2. Your career
3. Economic shifts
4. Your behaviors
5. Acts of nature
Of the five listed, there is only one in which you can control: Your behavior. You can exert some control over your health by getting checked regularly, eating properly, and getting the right amount of sleep and exercise.
You can exert some control over your career by making sure you understand the dynamics of what might impact your ability to continue working.
For example, what is the impact of technology or other shifts on the viability of your job? If your skills, knowledge, and ability are not current, it is important for you to focus on improving yourself to remain viable.
You cannot control the economy or acts of nature; two out of the many things that you have to put in the column of “uncontrollable.” When it comes to the economy, it is best to have a keen understanding that it is an unpredictable cycle.
You can protect yourself, somewhat, by having an appropriate amount of liquidity and being properly diversified in your investments so that you are not taking on too much risk relative to your ability to absorb the volatility of the markets.
The next article will deal with the creation of a written plan and the aspects that MUST be present for it to have value. The final article will bring it all together to help you bring your thoughts and ideas together to move forward strongly.
Time to put on your assessment caps and begin to think through some of these concepts.