Financial planning is essential.
You must save money, pay your bills, invest for the future, and take care of your family.
But now and then, you may hit a mental roadblock.
Do I take that trip to my family living across the country? Are we better off not taking the kids to Disney? Inflation is on the rise. Shall we skip the vacation?
Many gurus will have you believe that financial planning is all about trade-offs – sacrificing the present for gains in the distant future.
To be honest, I have nightmares of Suze Orman saying, “YOU CAN’T AFFORD IT!”
But is it worth skipping all the good parts of life for all things hunky-dory 40 years down the line? Is it worth skipping that cup of coffee every Saturday?
To answer that, think back to your “Why.” Why do you want money?
Money isn’t the end. It’s a means. What you really want is health, stability, and happiness for yourself and your family.
And money is the way to achieve that, hence the need to make sound financial decisions.
You feel confident about your future only when you have a rock-solid foundation – when you can comfortably say, “I’m finally financially planning for my family, and it feels great.
A good starting point to build up your plan is the roadmap to financial planning for new parents. It covers the essentials and lays a standard framework in place.
But in reality, a standard life is not what you want to have.
You have your own goals. Goals that are specific to you. Goals that help you live the life you desire.
To get there, I advocate what’s called a life-centric approach. It’s a method that addresses your future while helping you live the life you’ve always wanted.
If you only have long-term goals, you’re missing out on the pleasures of life and, with them, the true purpose of financial planning.
I’ve worked with people from all walks of life, and none of them regret the money they spent on experiences and holidays with their families.
The essence of financial planning is to prepare for the life you have always wanted to live.
And it all starts with a simple 7-step framework.
1. Visualize A Happy Life And Write It Down
2. Prioritize
3. Communicate With Your Spouse
4. Address What’s Not On The List
5. Have A Smart Approach
6. Implement And Track Your Goals
7. Re-Evaluate Goals And Priorities Regularly
1. Visualize A Happy Life And Write It Down
Take some time to relax and think about the kind of life you want to live. But not the life you’ll have 45 years down the line. Think about your life after a 5-year horizon.
● Where do you want to live? Are you renting a house, or have you bought one? Are you in the same neighborhood? Or did you shift to that apartment five blocks away that you wanted to?
● What does your family life look like? How many kids do you have? How much time do you have for them? How do you and your spouse spend your time together?
● What does your work-life look like? Where do you work? Did you shift to that office you always wanted to? Do you take enough time off?
● How’s your social life? How many of your friends live nearby? Do you have regular outings? And what about the reunions every year?
● What about other interests? Do you pursue your hobbies? Did you take the kids to Disneyland last year? What about that hike you planned?
These are some of the instances that will define your financial freedom five years down the line. So it’s essential to think through them.
Remember what we discussed about physically noting down your “Why” on a piece of paper?
This section ties into the very same philosophy. So, make a note of your answers on paper and store it somewhere accessible.
This reminds you that you don’t have to wait for decades to see the results of financial planning. This note will comfort you if you feel you’re straying from the path.
2. Prioritize
Make sure you prioritize your goals once you have a clear idea of the life YOU want to live.
While the Roadmap lays out a standard set of steps for everyone, this step is unique to you.
Only you can determine your priorities in life – where you want to be and how you envision your family life.
List your priorities and order them into three buckets – high, medium, and low. Make a note of these as well.
Again, think about what works best for YOU.
The annual trip to see your family could be a high priority for you but a medium priority for someone whose family lives a few towns away.
3. Communicate With Your Spouse
Every decision you make in life is bound to involve your spouse. And to prevent disagreements in the future, you need to make sure both of you are on the same page. This isn’t tough, but you must communicate adequately to make it possible.
There’d be things that both of you think are high priorities, and then there’d be high priorities on your list that are low on theirs.
That’s normal and nothing to fret about.
It’s important to remember that you are allies, not adversaries.
Open communication will help you realize that you are working toward the same goals. You may have different ideas for reaching them.
But once you align your paths, potential conflicts could turn into fun moments for you.
For instance, the $200 spent on the summer camp would no longer be a point of contention once your budget is on track.
Sit down for 15 minutes and communicate the notes you have made about your life goals and priorities.
1. If there are things you have in common, tick them off first. Talk about your shared vision and how you hope to achieve it. Prioritize working toward these together.
2. Address the differences. Does your spouse have a different idea about priorities? Talk about it. Ask them why it’s essential for them.
3. Have another go-around at this a few days later. Do you still feel the same about your priorities and agreement? Then go ahead and set your priorities in stone. If not, repeat the process.
This exercise helps you bond and work toward the life both of you desire while preventing potential confrontations in the future.
In addition, if you find financial planning tedious, this exercise would make it more enjoyable.
4. Address What’s Not On The List
What do I mean by that? Some issues take up your attention and resources but aren’t crucial for either of you.
● Maybe you are ready to break up with the cable company after switching to Netflix and Disney+.
● Are you working from home?
● Is that second car payment a burden?
● And the many subscriptions on your credit card? Do you need them?
Take a look at your credit card statement to better understand what you’re paying for every month.
There may be some non-essential expenses hidden in there that you can cut out. It’s best to acknowledge these so you can free up resources.
Divert time and money from things that you don’t care about to things you do care about.
A good tool that helps free up resources is the tax-control triangle.
5. Have a SMART Approach
The SMART framework helps you define sensible goals. Without this, your priorities would fizzle out into vague ideas.
SMART simply means that your goals must have these dimensions:
● Specific
● Measurable
● Actionable
● Relevant
● Time-bound
Let’s take a vague goal and turn it into a SMART one.
“I want to buy a car in a few years.”
When you add the elements discussed above, this could look something like this: “I want to afford the down payment for that 3-row SUV in 5 years. To this end, I’ll start a monthly automatic transfer of $150 into a low-risk liquid account.”
Notice how much clearer your goal just got? You specified what you wanted to buy, how to get there, and what steps you could take today to make it possible.
Take a day or two to turn all your priorities into SMART goals. This helps you set better goals and track your progress.
6. Implement And Track Your Goals
You could have a fountain of ideas for your dream life but get nowhere close to achieving it without taking action.
It may seem daunting at first, and I agree that it is. But you don’t want to act on the plans you make because of the fear of making a mistake.
But if you let that fear prevent your decisions, your dream life will never materialize. Because to achieve your goal five or ten years into the future, you need to take concrete steps today.
It’s okay to make a mistake. Even financial planners make mistakes. That’s what makes us human.
So don’t worry too much about what you can’t control.
Instead, focus on the takeaways and the experience you gain.
Since your goals are unique to you, your mistakes are your guide to better life-centric decision-making.
There’s no such thing as a perfect decision. There are only two types of decisions – ones that help you progress and ones that you learn from.
Now that you have actionable goals take bite-sized actions regularly toward achieving them.
Keep tracking your progress from time to time.
Set up an automated financial framework to take the pressure off of remembering every single action you need to take.
This will help you build and stick to better financial habits.
7. Re-Evaluate Goals And Priorities Regularly
What you did with your spouse in the third section was a healthy exercise to organize your priorities together.
But it’s not a one-time thing.
As major life events happen, your priorities change, and it’s essential to change your plan accordingly.
Every six months, revisit this process to ensure all life changes are accounted for.
For instance, a high-priority item for you today may not be so five years later as you achieve some of your goals.
As you re-evaluate your common goals and see they are on track, it will open up your mind to other life-centric opportunities.
“Our financial plan shows we are 95% on track for retirement. Why don’t you go to that spa day with your mother?”
Setting Better Financial Goals
I hope this blog gave you a good idea of how understanding and setting better financial goals can make a dramatic impact on your life.
The key idea I want you to take away from this is that to live a better life, first, evaluate your life goals and then build a plan of action to get there.
If you’re expecting a baby or have just become a parent, download this free roadmap – it will give you the exact steps you need to start building your financial plan.
If you need 1-on-1 assistance with planning for your goals, please feel free to book a no-obligation call with me.
As a family financial planner, I have helped hundreds of families in Boston and would be happy to help you reach your goals.
