10 Financial plan questions that could change your life and financial independence

If you aren’t asking the right questions, you won’t get the best answers.

When you change the questions you ask yourself and your financial advisors, you can change your life. And the financial dimension of your life is no exception.

Use the following 10 questions to help clarify your direction, establish meaningful milestones, and solidify a commitment to getting where you want to go. You’ll be your own financial planner in no time!

1) How would having clear life goals impact your life?

When your goals are undefined or vague, it is common to feel rudderless, a persistent sense of insecurity, worry, and scattered-thinking, especially when dealing with big life goals or the topic of retirement.

Research reveals that goal-setting can literally change how your mind works.1  Additionally, when highly motivated to achieve something, you start perceiving what stands in the way as less significant.2 On top of this, science finds that regularly monitoring your progress increases your likelihood of success 3

Example of a clear goal:  I want work to be optional.

2) What is the ideal and realistic timeline for your ideal life?

Once you have clearly defined goals, establishing timeframes helps set those goals in motion. Otherwise, there’s no tick-of-the-clock to offset temptations and procrastination. Make your goals time-bound to boost the probability of accomplishing them.

I want work to be optional → by the time I turn 62.

3) Do you know your “number,” the amount of savings it will take to make your goals possible?

Once you know where you’re going, and when, it’s time to figure out the funding it will require .

Rather than aiming for one specific number, it’s best to identify a range of acceptable financial outcomes for retirement since many factors affect the ultimate dollar amount you’ll need:

• When you’ll start relying on savings
• Your desired lifestyle and spending in retirement
• Whether or not you take sabbaticals or breaks from work before retirement
• Career aspirations (changing jobs, starting a new business, going back to school, part-time work during retirement)
• Your health and expected longevity
• Major one-time outflows, like vacation homes, family gifting, philanthropy

Then, it’s valuable to stress-test the options you consider through multiple “what-if?” analyses.

4) What is the ideal model for your second act?

Your goals and timeframes, and the numbers to achieve them all stem from your long-term vision. Some visions includes taking on new interests or challenges after a long career or as part of multiple careers. When shaping your vision, considering the experiences of others and creative alternatives can help you find the best fit.

For example, some dream of early retirement, assuming that ending work sooner will maximize happiness. They plan around a longer full retirement, sometimes making significant sacrifices to make it happen, only to encounter the early retirement myth first hand.

The results of a 2016 Federal Reserve study challenged the traditional idea of an early retirement, finding that many retirees chose to return to work after retiring. And even more pre-retirees planned to continue to work even if they don’t need the money.4

What would  your life’s ideal second act look like? It’s worth taking the time to explore your options. To get started, look into the benefits of taking a mid-life gap year, or a shorter sabbatical, or developing a semi-retirement lifestyle.

Exploring an array of approaches can lead to the best fit for you.

5) How should your financial strategy evolve as your needs do?

Even with the best planning, not everything is predictable. Your life stage, preferences and needs evolve. When they do, so should your financial plan.

One moment, you’re preparing to launch your children into adulthood. And the next, you’re caring for your aging parents. It’s key to consider how your financial plan will be able to adapt to your ever-evolving journey.

The same type of stress-testing you used early in your planning can be re-run to test desired changes and avoid decisions that would jeopardize your most important prior or new goals. In other words, a good financial plan and process adapts to you, rather than being overly rigid.

6) If you’re not using an effective process, possibly doing it all yourself, what’s the opportunity cost?

Self-reliance is an admirable trait, but not when it gets in the way of peak performance. Always consider the risks to your goals, money and time. Even if you have the skills, do you have the time and focus to manage all of the elements of your financial plan and investments effectively and consistently?

Sure, you could fix your own car or do your own plumbing. But for the best results, it typically makes more sense to let a professional take care of it. Getting good guidance for the complexities of financial planning and management is even more important, given the potential impact on your life.

The opportunity costs of trying to tackle your finances alone can be huge. It’s not just your time that’s at stake. It’s also your ability to stop working with confidence, leave a legacy, and keep a ‘work optional’ lifestyle.

7) Are your investment strategy and decisions driven by your goals?

When’s the last time you stress-tested your investment approach to ensure the expected outcomes meet your life needs? Do you have someone to challenge your assumptions and help elevate the knowledge you need most?

All too often, people create investment strategies themselves, or rely on investment-only professionals. They invest based on outdated or incomplete information that is not driven by the future life requirements of a financial plan. For instance, some mistakes people make are:

• Selecting a stock/bond mix purely based on risk tolerance or comfort level, rather than based on needs and goals.
• Taking too little volatility risk early in life and/or not adjusting risk as you progress through different life stages, or as needs and goals evolve.
• Allowing emotions, rather than strategy, to drive investment decisions.
• Under-diversifying

Challenge your pre-existing beliefs regarding what the best decision-path is towards achieving your goals. Be willing to expose yourself to new information. You may find that you are on track, whether by luck or by strategy. Or, you may discover that getting your goals on track requires immediate action and a comprehensive financial plan.

8) Are your estate, life insurance, tax planning and tax efficiency strategies evolving as your philosophy, needs and goals change?

Financial independence doesn’t just consist of saving and investing. It also includes protecting what you have as you build towards your life vision.

Smart estate planning means greater intergenerational wealth transfer and less heartache for your heirs. The right combination of insurance vehicles protects your wealth for you and your family. Tax planning and tax-efficient investing means reducing your yearly tax bill and the amount you pay over your lifetime.

Optimization of these financial areas requires ongoing analysis and adjustment. Failing to do so can leave you and your loved ones with unnecessary liabilities.

9) Are you eager to have a real plan but are ignoring your own needs because you are too busy?

Do you suffer from peak busyness? It’s a common condition of successful mid-life business owners and leaders. Side effects include being unable and/or terrified to take time away from your business, constantly worrying if you’re doing enough, juggling work, family and community impact responsibilities, and feeling fortunate but frequently wishing things could be simpler and easier with less pressure and responsibility.

Ironically, many successful, hardworking, diligent people at the top of their game let busyness jeopardize their financial goals. The immediate demands of managing your business, family and more make it easy to rationalize putting planning off for a “better time” to get organized. If good help meant the process were much easier than you think, would you do it? Doing so could require a bit of time but could significantly reduce your background stress and help you be more present for the people you love and those that report to you.

10) What if you are off track? Or, what if you are unknowingly on track, and could take steps to ensure you stay that way?

Unfortunately, many people believe they’re more on track than they actually are. And if this goes on long enough, it can mean having to make major sacrifices later in life. The closer you get to your desired “financial independence” age, the harder it is to make adjustments to get fully on-track.

There are also cases where people are experiencing significant but unnecessary stress, being on track without knowing it. In these cases, having a financial plan provides peace of mind and a shift in strategy towards wealth protection, which can further increase the probability of goal achievement through smart risk controls, and possibly a path to working less, sooner.

Ask yourself the most important questions now. Take action to create the best plan for the life you really want to live. Doing so also avoids pitfalls and regret, and helps you live your best life. A trusted advisory team is a powerful resource along your journey.

Set up a complimentary consultation, or call us directly at (415) 977-1200.

References:

https://journals.sagepub.com/doi/abs/10.1177/1534582303002002003 (1)

https://psycnet.apa.org/doiLanding?doi=10.1037%2Fa0027882 (2)

https://www.apa.org/news/press/releases/2015/10/progress-goals (3)

https://www.federalreserve.gov/econresdata/feds/2016/files/2016053pap.pdf (4)