How to Start Your Financial Plan

Creating your personal financial plan

Don’t know where to start on your financial plan? Start with “Why.” 

After you gain an understanding of your “why” everything else can fall into place.  

“Why” is simple in concept. It is the reason. It is the purpose.  

“Why” is extremely difficult for many people. Why? Because it is emotional, boring, embarrassing, and many more adjectives.  

It requires self-reflection. It requires forward thinking.  

Two mental exercises that are not natural. Two exercises that an app can’t help with.  

I’m far from an expert in self-reflection or forward thinking. I’m only an expert is understanding that “why” is critical to making optimal financial decisions. 

The math behind financial decisions is easy. Retirement or financial calculators help a lot. Years of paid education. Years of self-driven research. Financial planning software. All of these make the math easy.  

What you do with the numbers is the hard part. Is the optimal math solution the optimal “why” solution? 

Since you don’t have a crystal ball, how are you supposed to know your “why?” Visualizing 20-30 years into the future is no easy task. You might love walks on the beach now but might love hiking in the snow later in life.  

There is no one way to find your “why.” To get you started, I will give you two examples of how to find your purpose. 

Life Planning  

Life planning was popularized by George Kinder.  George provided the service when he was a financial advisor. He’s published numerous books on the topic and created the Kinder Institute of Life Planning. 

George and many others believe life planning is simply financial planning done right. In his own words, “life planning is the most efficient process for delivering freedom into a person’s life.”  

Personal finance is all about finding freedom. Financial freedom. Financial independence.  

Life planning is really getting to know yourself. Revealing who you really want to be, and what you really want to do.  

It is typical to focus on the vehicles to achieve our goals… tax planning, retirement planning, risk management, investments, estate planning, cash flow. The normal question is … “how can I optimize these vehicles?”  

The reality is if you sit back and ask yourself what you care most about in life it is unlikely you will mention a retirement plan, estate plan, investments, or taxes.  

However, we focus on these vehicles as the creator of your ideal. When in reality these are tools in the process. 

The math behind those tools can be optimized. Optimizing for “what is step one.  

George popularized three questions as part of the life planning process: 

  1. Imagine you are financially secure, that you have enough money to take care of your needs, now and in the future. How would you live your life? Would you change anything? Let yourself go. Don’t hold back on your dreams. Describe a life that is complete and richly yours. 
  1. Now imagine that you visit your doctor, who tells you that you have only 5-10 years to live. You won’t ever feel sick, but you will have no notice of the moment of your death. What will you do in the time you have remaining? Will you change your life and how will you do it? (Note that this question does not assume unlimited funds.) 
  1. Finally, imagine that your doctor shocks you with the news that you only have 24 hours to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What did you miss? Who did you not get to be? What did you not get to do? 

After completing the exercise you can identify patterns that lead you to your why. Stepping back and finding clarity on these answers is a great start to find your “why.” 

Discover your values 

Maybe life planning isn’t the right fit for you. Maybe life planning is perfect. The need to find your why remains important, so let’s look at another option.  

Another option is to complete a self-reflection exercise that will help you identify your values. Here is that process. 

STEP 1:  

Write down your perfect day. Recall the moment where your life couldn’t be any better. What were you doing? Where were you at? Who were you with? 

Think about other perfect days. Maybe you have two or three perfect days. Write those down too. 

STEP 2:  

From that description think about and discuss what values are recognizable from those perfect days. Examples of values: adventure, career, creativity, environment, family, friendship, freedom, health, learning, leisure, money, power, possessions, philanthropy, safety, time (I added more at the bottom of this) 

STEP 3:  

Rank those values in order of importance to you. 

STEP 4:  

Define what those core values mean to you. 

STEP 5:  

Now that you know what your values are, it’s important to see if that’s the life you’re living. The best reflection of your values can be found in two ways: 

  1. How you spend your money. Are you spending your money in a way that reflects your values? 
    • If somebody wrote a description of you based only on your spending patterns what would they see? Who would you be? 
    • How does your spending today impact where you want to be in the future? How can you buy more perfect days? 
  2. How you spend your time. Are you spending your time in a way that reflects your values? 
    • If there were cameras following you around and playing your life on TV for the world to see what would be the people’s opinion of what you really value in life? 

If this is the first time you have attempted this… it might have been scary or even painful. Heck, this could be the 30th time and still feel that way.  

Even if you do this a few times a year, you will still find yourself spending time and money on things that don’t match your values. That’s OK. This is an exercise to keep those values top of mind. It’s part of your process to becoming financially free.  

Whatever comes from this exercise please don’t be judgmental. If you go through the process and beat yourself up afterward then this exercise will have a negative impact.  

As part of this process, you’re going to learn to say, “isn’t that interesting?” 

Finding your Why 

Finding your why might include a version of George Kinder’s life planning or a values discovery process. Neither path is likely to disappoint you.  

While the system and techniques are different, the end goal is the same.  

Living a meaningful and purposeful life is the secret the happiness. Money is only a tool.  

As stated by author and speaker Carl Richards,  

The alternative is the path too many of us take, chasing after random prescriptions for our financial lives and telling ourselves that we’ve got it all figured out. Or we could take a deep breath and ask “Why?” Only then can we weigh if what we’re doing aligns with the things we say matter most to us, or if we need to make some changes. 

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Do you want to understand how to make your money work for you and keep more of what you have earned? 

Reach out to me at nbyers@jbcwealthadvisors.com or schedule a free consultation.

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Nate Byers a Madison, WI CPA Financial Advisor,  and all rights are reserved. Read the full Disclaimer in the footer below