Writing Your Own Personal Financial Plan, Part 1 -- Your Values and Your Purpose
In this 3 part series I will cover, what I believe to be, the 3 main elements of a properly built personal financial plan.
The 1st element of a well written personal financial plan is: Your Purpose and Your Values.
We start your financial plan writing process with the question: “What is important to you about money?” And, if you have a significant other, this is a wonderful opportunity to hear from them about what makes money important to them. So you can take turns asking each other “what is important to you when it comes to money and finances?”
It’s important to start with this type of question before moving on into goals, specific to-do items, or investment techniques, because this focuses the entire personal finance discussion around your core values that you hold to be most important to you.
Everyone has a story when it comes to money and how it has impacted their life from childhood all the way through adulthood. And this plays a major roll in finding out what you value most when it comes to money and having a plan for your finances. So, a few other really insightful questions to ask of yourself, or for you and your spouse to ask of each other, is “what was money like for you growing up” or “what is your first memory of money’s significance in your life?” The answers to these questions will start to fill in some details as to why you think about money the way you do.
Another great exercise to use in coming up with your highest values or your main purposes when it comes to your finances, is to ask yourself or have some one ask you “why is money important to you?” And the key is to continue asking this question over and over with each new answer that comes to mind, until you come to your highest values or purposes for money. Usually it take 5 to 7 “why’s” until you come to a place where your answer is the most important thing to you when it comes to dealing with money and planning for the future.
For example, someone might answer “providing for my family” to the first question “why is money important to you?”
Then the second “why” question is “why is providing for your family important to you?” And someone might answer, “because I want to make sure I can spend time with my family while we’re healthy and young.”
Then the third “why” question is “why is spending time with your family important to you?” And the answer might be, “because I want to make sure we experience new place around the world”
And (you guessed it) the fourth “why” is “why is that important to you?” The answer, for example, might be “because I want to give and serve people in need with my family?”
The fifth question, “is there anything more important than giving and serving with your family?” Answer, “No that’s the most important thing to me.”
Another title for this exercise is called “The 5 Why’s.”
Now as the example above shows, this person now has at least one purpose or one highest value for their financial plan, which is "to give and serve those in need with my family.” This then become a driver for the rest of their financial plan and it dictates their main goals.
It helps to frame goals with what you value, and it gives a “true north” when determining if your goals are compatible with what is really important to you. Putting your values and purpose for money in writing also serves as a way of preventing you from setting goals that don’t really jive with what’s important to you and/or your significant other. For example, maybe someone thought their mail goal was to buy a condo in the city, when in reality, after going through this exercise, they actually value most flexibility, space, and travel. So, this allows them to redirect their funds towards these goals that better align with their lifestyle desires.
In short, start your financial plan by trying to come up with one or two purposes or highest values for money in your life. This is different than a goal, because goals tend to change based on ages and stages of life, where as, your values and your purpose tend to stay constant and consistent throughout life.
Putting “your why” to paper, or “your highest values and purposes for money” in writing might sound daunting or even a little too touchy-feely when it come to writing a personal financial plan. However, it’s the most important step of the process. At first it can be slow-going to come up with core values when it comes to money but give it some time and you’ll start to recall pivotal money moments in your life and you’ll start to have answers to the “why is money important to you?” question.