Financial Planning Myths Part 2 – It’s All About Your Biggest Goals and Dreams
Article By Thomas Twombly
Artwork by Daisy Lopez, Staff Accountant
Financial Myths Part 2:
It’s All About Your Biggest Goals and Dreams.
To create a plan of any kind, you have to know the ultimate destination you are trying to reach, right? Theoretically anyway, that is a “no-brainer.” Because without a “big, hairy, audacious goal” to aim towards on the far horizon, how can you possibly keep yourself motivated?
So, in the so-called “retail investing” world, the attention focused on big financial goals and dreams is significant. Think about all the ads you have seen of mature, tanned, fit people strolling along white sand beaches or sipping beverages with little umbrellas in them as the golden sun sets over the bay. Think of the houses, cars, yachts, golf courses and exotic vacations depicted.
Many in the business expect prospective clients to state those big-picture dreams right off the bat, and to offer clear, confident, well thought out answers that demonstrate their commitment to achieving the good life – an experience, by the way, that is disturbingly similar to the supposedly motivational “goals meetings” they themselves have with their sales managers each quarter. If you have ever been through an experience like this (I have) you know what I am talking about. It’s one of the reasons people hate meeting with so-called “advisers.” These goals and dreams discussions feel contrived, manipulative, and uncomfortable – because they often are.
The truth is few people can clearly define their highest-level financial goals at first blush. And if they try, it is likely vague and generic, like: “I want to be comfortable in retirement,” or, “I’d like my money to grow.” Why do you suppose that is? Is it something wrong with them? Or is it something wrong with the way the financial world defines the challenge?
I maintain it is the latter, and this failing demonstrates a clear lack of understanding of the way basic human psychology works. The fact is, other needs and motivations must be explored and addressed first – and this is true no matter how wealthy or “successful” a given individual or couple may be.
Maslow’s Hierarchy of Needs:
Abraham Maslow was a noted psychologist who is best known for his theory on the human Hierarchy of Needs. Maslow’s theory essentially states that human psychology demands that needs on the lower levels of the hierarchy must be fulfilled (and keep being fulfilled) before needs that are successive steps further up the hierarchy can be relevant¹.
Human minds are not built to leap straight to the top level of fulfilling their unique potential and achieving their dreams unless they have comfortably progressed through each of the levels below. Realistically, it is not as cut and dry as the graphic above depicts; there is certainly some mixing between levels, and most of us will travel both up and down the hierarchy as we live our lives, but the overall structure holds remarkably true. Just think about your emotional response the last time you experienced a “crisis” of some sort. Didn’t you naturally gravitate towards the bottom of the pyramid?
So, expecting a person to cast their vision far enough out to engage fully with their financial future when they may not even be able to envision the next month is counterproductive at best. Think about it, saving for retirement is the last thing on a person’s mind when their bills are stacking up and their landlord is threatening eviction. So where do we go from here?
In my experience, the key element in more effective planning is a reframing of the concept, and a purposeful focus on the foundational levels of the hierarchy first. The questions I prefer to begin with are: “What are your most important obligations and responsibilities – to yourself and to others? What are the financial objectives you absolutely must achieve to feel a sense of security and satisfaction with yourself?”
Thinking about your financial plan through this lens helps to clarify what’s truly important to you; the things you’re prepared to sacrifice for in order to achieve them. Consider your closest relationships, your family commitments, and your closest community ties. When you come across an area where you feel a strong sense of obligation or responsibility, dig deeper, because there is motivation to be found there.
There is also something else there that is critical to long-range financial success in my experience, and that is the clarity and confidence to say “no” to the myriad diversions you will encounter along the way, whether it’s overcoming a sudden impulse to spend money on something else, or the impulse to make a radical change in your investment policy when markets, or your life, hit an inevitable air pocket.
So instead of straining to project some anomalous future to satisfy someone who doesn’t “get” you and is more interested in talking ad nauseum about their money management techniques, center your thoughts on the people (including yourself) to whom you feel the greatest sense of responsibility. Before you know it, you will have developed meaningful objectives and goals that strike to the core of who you are and what kind of legacy you wish to leave behind. And you’ll find the discipline to see them through.
A truly good advisor can help you by being an important sounding board in this exploratory process. Then, and only then, should they offer to craft an investment portfolio that serves your plan. Because that plan should serve you.
Thomas G. Twombly
President