How Do You Navigate the Puzzle of Your Financial Life?
How Do You Navigate the Puzzle of Your Financial Life?
When you make individual financial decisions do you take your entire financial picture into account? It’s okay if the answer is no. Most people don't. It’s not always easy to see how a single decision in one area of your life might affect another. Most of us make decisions based on each opportunity or need as it presents itself. To make smart financial decisions, you need a clear understanding of the “opportunity cost” of other possible choices.
For example, recently a client received a large bonus. Intuitively, he and his wife wanted to 1) buy their daughter a car; 2) invest in a real estate deal; and 3) give some money to a favorite charity.
Nothing wrong with that.
Over the years, I created a five-point framework to help clients address the important areas of their financial life in manageable bites. These five points include:
YOU: Your priorities and goals
LIVE: Your income and your spending
BUILD: Your net worth
PROTECT: The risks in your life and how you manage them
GIVE: Your estate and giving plan
Breaking up financial areas into smaller bites helps you address each area in more detail. Once you do that, you'll have a sound foundation to make smarter financial decisions that are in harmony with your financial goals.
Back to my client with the bonus. Since they had previously developed their goals and strategies within this five-point framework, I encouraged them to review them so they could make the best use of this opportunity. In making a decision on how best to spend and/or invest the bonus, here’s what they found:
YOU: Their stated priorities were to be debt free, build wealth, and have cash available for unexpected expenses.
LIVE: Their cash flow would be affected by their daughter’s need for a car within six months.
BUILD: They had a small credit card balance, underfunded emergency fund, and a real estate investment opportunity.
PROTECT: They had no issues with risk management.
GIVE: They had a local organization that they cared deeply about and wanted to support.
After our discussion and their review, my clients decided to 1) use the bonus to buy a car for their daughter; 2) pay off the credit card; and 3) fully fund their emergency fund. Their three choices were more aligned with their values and current financial priorities, and the "cost of this opportunity" was minimized.
This mind map is a good first step in helping you think more clearly about your financial life.
Does this seem like too much to handle? No worries. I have over 23 years of experience helping hundreds (maybe thousands) of clients deal with these issues. Together, with this blog and my new podcast, you and I can find and share solutions to the financial "pressure points" in your life.
Question: What is a financial pressure point that you're struggling with?
Tell me privately below and I'll do my best to create content to help you.