As Southwest Florida shifts into its busier season, with tourism and prices at their annual highs, it can be argued that now is a good time to put a fresh set of eyes on your financial plan.
Are You Allocating Your Time and Money with Your Intentions?
Too often, one expert opined, financial plans (and planners) move straight to the “solution” phase, without stopping to ask some basic questions about what someone is trying to achieve and what their real problems are. What will constitute “success” for you over the next few years, not just in financial terms, but in life terms, too? Are you allocating your time and money in line with your intentions, what you find fulfilling, and what brings you joy? These questions are incredibly personal; no one else can answer them for you.
Whether you are well into retirement or early in your career, it can be easy to backburner questions like these and move straight to logistics, determining your asset allocation and minimizing taxes, for example. Those are all worthy pursuits, but if you find yourself with a bit of extra time to think a bit more broadly and introspectively about your financial plan, here are some of the key questions to ask yourself.
What Expenditures Bring You Happiness?
As most investors know, the biggest determinant of whether you achieve financial success is how much you spend versus how much you save. However, as important as it is to ensure your intake exceeds your outgo, budgeting can seem like sheer drudgery. Here is an alternative approach to budgeting. Begin taking note of how various discretionary expenditures affect your feelings. It can be incredibly illuminating. Much of the scientific research on spending and happiness suggests a clear connection between spending on experiences versus material possessions. Many would also argue that many of life’s most memorable experiences cost very little.
How Are You Allocating Your Precious Resources?
Investors should strive to make informed allocations of financial capital across various opportunity sets, not just saving versus spending, but also debt paydown versus investing in the market, determining how much to allocate to retirement savings versus college, and so on. These are crucial topics worthy of significant analysis and introspection. Ultimately, the right answers are a matter of math (expected return on “investment”) and personal preference.
Many of us pay much less attention to how we allocate a scarce resource, our time, even though that allocation will ultimately have a greater impact on whether we feel like we have met our goals. Of course, some of our time expenditures are predetermined, such as the time we spend working or caring for children. Even within those allocations, it seems worthwhile to be more mindful, to help ensure that your allocation of time in a given day, week, or year aligns with your goals and vision for that period. An audit of how you currently allocate your time is a good starting point. Technology tools can help you determine how much time you waste (uh, spend) on social media and other activities that could be detracting from your productivity and happiness.
What Is Your Definition of “Enough”?
Many of us are operating with an incredibly vague notion of how much we really need to save to achieve our financial goals and find security. Even financial planners might rely on rules of thumb when setting your retirement savings target. For example, they might assume that you will need 80% of your working income in retirement and extrapolate the rest of your plan from there.
As humans, we often have a natural tendency to reach for more, more, more – regardless of whether that “more” is actually bringing more happiness and security. Trying to keep up with the people around us, in terms of possessions and outward signs of success, can get exhausting and may not get us any closer to our life’s goals. That is why, in this period of limited activity, spending, and social contact, it is worthwhile to think through your own definition of enough, both now and for the future.
The Importance of a Living Will
Whoever your trusted legal counsel may be, they will bring up the subject of a living will. A living will is as its name suggests – a document of your will (choices) while you are alive so that your wishes are known if at some point you are unable to communicate them. Your living will could include instructions related to resuscitation, feeding or breathing tubes, and pain medication. It is crucial to make the decisions now to keep your future self safe.
My mother-in-law originally made a verbal decision that her son and daughter would make the choice together about what would happen to her if she were to be on life support. Her daughter said she would keep her on and pray for a miracle, whereas her son said he would make the difficult decision to remove life support. When my mother-in-law saw the disagreement her children had regarding the decision, she realized that drafting a living will could put an end to their disagreement.
After your make your decision and draft your living will document, you should share your wishes with loved ones to help release potential angst and arguments. It will also give you the opportunity to discuss your choices with anyone who may raise objections.
What Do You Want Your Legacy to Be?
When taking a strictly financial and estate-planning perspective, leaving a “legacy” is one of those topics that can seem overly narrow. It is about leaving assets behind for children, grandchildren, and other loved ones, as well as making charitable donations if we so choose. It is about ensuring we don’t burden the people we care about. These are crucial considerations, and that is why everyone needs an estate plan that includes wills, powers of attorney, and beneficiary designations, among other key documents.
While you are at it, why not think big picture about your legacy, too? What do you hope people will say about you after you are gone? What life philosophy or pieces of wisdom do you hope that your loved ones will always associate with you? If you find yourself with a bit of extra time for introspection, write down a few ideas along these lines. And no, you are not too young to start thinking about this. You can find templates for creating a personal legacy online, but some good advice is not to overthink it. Balance more serious ideas with more lighthearted ones. We all have credos that we live by; make sure your loved ones know yours.
Nina Azwoir, First Vice President of Investments, Wintrust Wealth Management. © Morningstar 2020. All Rights Reserved. Used with permission. This information may answer some questions but is not intended to be a comprehensive analysis of the topic. In addition, such information should not be relied upon as the only source of information, competent tax and legal advice should always be obtained.
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