The First Hurdle: Figuring Out Your Why in a Financial Plan

Up to this point, I’ve written about the importance of having some kind of financial plan, but I haven’t really gone into how to start and maintain one. I think, at least, part of that is the fact that it took me a long time to figure out how to implement my own plan.

Yes, I know there are a lot of financial gurus out there with plans of their own, but none of them had one that worked perfectly for me. Everyone’s mind works a little differently, and there was always some convincing that my mind needed to really get things going. And, understanding the math behind everything only goes so far when we think about money.

The convincing I seemed to have needed was a specific “why”. And, by “specific”, I mean you need a bigger reason than “to have more money” to keep you going.

For instance, Ramsey Solutions personalities will sometimes tell you to “Dream in HD” and Ramit Sethi (I Will Teach You to be Rich) asks his readers and students to describe their “rich life” in greater detail than they have been used to. I think the reason for this is to give you something specific to counter the “new toys” that tempt you to impulse buy. Without a concrete goal in mind, your goal becomes what is in front of you at the moment.

Over the past few years, I’ve come across 2 methods that I think help you find both long-term and short-term goals to focus on while you’re creating your financial journey. One is a “top down” approach, starting with a long-term, no holds barred, luxurious goal, and then working back to more urgent items. And, the other is a “bottom up” approach, building from necessities only and working up to various luxuries.


Top Down: 3 Questions by The Kinder Institute

The first method for finding your financial why comes from the Kinder Institute. I would encourage you to print out the form from their website to work through the steps.

Here is a summary of the questions:

  1. How would you live your life if you were 100% financially secure?
    • Note that you have unlimited money in this scenario. Don’t hold back. This question is designed to remove the limits from what you might want out of life.
    • Remember to be specific with your dreams. Don’t say “travel more”. How often would you travel? Where would you go? Where would you stay? How long would you stay? How would you get there?
    • What specific causes would you give to?
  2. You visit your doctor and find out that you have 5-10 years left to live. You will never feel sick, but also have no notice of the moment of your death other than it will be 5-10 years from today. What will you do with the remainder of your life?
    • Note that this scenario, unlike in the previous question, limits the amount of money you have. So, it’s a situation we can relate to a little more than the one in question 1.
    • The point of this question is to start assigning some priorities to the things we’d like to do with our lives. Many of the more extravagant items from your answers to the first question will fall off the list here. (Keep hold of those luxuries, though. I’ll explain why later.) The things that come to mind here will be short to mid-term goals for your financial plan.
  3. Similar scenario to question 2. But, this time, you have only 24 hours to live.
    • As in question 2, money is limited. (Which makes sense, given your limited hypothetical time on Earth.)
    • The question asks you to examine what feelings arise when you confront “your very real mortality”, and asks 3 short follow up questions.
      1. What did I miss?
      2. Who did I not get to be?
      3. What did I not get to do?
    • This last question is designed to help you figure out your most urgent goals. The feelings you have and the goals that come to mind here are going to be the ones that are most important to you and your family.

So, that’s how you can work from long-term luxury to urgent priorities when designing your own financial plan. Now, let’s work from the bottom up.


Bottom Up: A Variation of Tony Robbins

This approach is my variation of Chapter 3 in Tony Robbins’ Money: Master the Game. Most of the steps are the same, but I choose to eliminate one step from the ladder that Mr. Robbins walks you through in his book. We start with necessities and work our way up by adding some wants to our needs in each step up. You’ll notice that this method is more explicitly “mathy”.

The idea here is to give each item in your list a monthly cost, and then figure out how much money (or, rather, wealth) you need to have in investments to support those items. I agree with the books assumption of multiplying the total monthly cost by 20 to factor in a 5% yield, so that your investments are fully funding your lifestyle. (Assuming your investments get 8%, a 5% withdrawal would increase the value of your investments around 2.5% each year. This would allow you to have your income from those investments to increase gradually over time.)

If, at any point, you’re not sure how much something costs, feel free to research it by either looking it up or even getting a quote somewhere.

Here we go.

  1. Step 1: Necessities Only
    • Here is a place to track your necessities. Your, basically, just existing here. No eating out. No travel. No hobbies.
    • Rent/Mortgage*
    • Car Payment/Car Savings Allowance, if applicable
    • Utilities
    • Car Maintenance
    • Insurance
    • Groceries
    • A Small Clothing Allowance
  2. Step 2: A Few Minor Luxuries
    • Now, we can add some hobbies and other extras, such as…
    • Gym Membership
    • Short, day-trip style vacations
    • Dining Out
    • Television Streaming Services/Cable/Satellite
    • More Clothes/Nicer clothes
  3. Step 3: Time to Live a Little…or, Maybe, a Lot
    • Some more luxuries, such as
    • Giving more extravagantly to the causes that matter most to you.
    • Longer vacations that can involve flights, cruises, and lengthier stays at your chosen destination.
    • Can you ramp up any hobbies?
    • If you’re keeping up with the math, your required investment total is probably starting to look almost unattainable. Don’t let that stop you. Continue to dream, and move even further up the financial planning ladder with…
  4. Step 4: The Most Ridiculously Extravagant Life You Think You Can Stand
    • Take everything in step 3 and crank up the volume.
    • Giving more extravagantly to the causes that matter most to you.
    • Those flights are first class, or even a private jet (you don’t have to own one, but you can dream it if you want), and accomodations for your travels can be more luxurious.
    • Did you step up your hobbies in step 3, do it again here.

While I went largely with travel in my examples above, you can do whatever you want with those steps. Remember, it’s your money, your dreams, and your financial plan. Our ultimate goal for your plan is to make it fit you.

Also, keep in mind, that no plan you come up with will be the last one. Over time, your life will change, and your priorities will shift. Revisit this exercise every year or so to see how things change. You can pick the approach that you prefer, or you might find benefits in each and run through both approaches to get you going in the direction you want to go.

As you move out of the planning stage and actually start living out your plan, hold on to the one small goal from your list. It doesn’t have to be anything big, especially if you’re just starting out. In various media outlets, Ramit Sethi has said his first “rich life” goal was to be able to get appetizers whenever he wanted. For me, it was a slightly nerdier…OK a lot nerdier, goal to have my investments pay for my subscription to Microsoft Office software.

In addition to that small financial goal, I also want you to hold on to that big lifestyle you dreamt of in Step 1 of the Kinder method or Step 4 of the Robbins Method. Most of us won’t attain those goals completely, but keeping them in mind as we move through life might just help us get to some of those big goals.

In short, holding on to some big dreams and some small ones can be a great way to stay positive as you work the hard stretches of your financial journey.


Thank you for visiting Finunciate. Come back, soon.

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