Guidance

RESOURCES TO HELP SHAPE YOUR FINANCIAL FUTURE

“Make no little plans; they have no magic to stir men’s blood and probably themselves will not be realized. Make big plans; aim high in hope and work.” —Daniel Burnham, 1891

Even for the privileged among us, who still have our jobs, are not on the front lines with the pandemic, and have not had anyone close to us felled by COVID-19, the current crisis has brought hardships big and small.

Parents have confronted the daily struggle of trying to do their jobs while also home-schooling. Adult children have not been able to visit their elderly parents. Graduations, weddings, and even funerals have been put on hold or “Zoomified.”

Yet as difficult as it has been, there have been a few silver linings, too—especially for those of us lucky enough to not be touched directly by the crisis. One of the most valuable, perhaps, is that pressing pause on our usual routines has given many of us the opportunity to take a step back, get out of our ruts, and take stock. What do we really value? What do we really miss? What can not we wait to do when this is all over? What “necessity” of our past lives—whether the daily purchased latte or frequent meals in restaurants—are we finding that we are quite happily doing without?

Travel may be someone’s greatest longing, while others miss cooking and entertaining big groups of family and friends. Talking about how the pandemic has changed our thinking on a topic, or made us want to do more of something else, can help us feel like we are using the present situation productively. The current sense of isolation will not be for naught, because it is shaping how we intend to use our lives in the future, when we once again have a full set of choices before us.

It can be argued that now is a good time to put a fresh set of eyes on your financial plan, taking a similarly expansive view of it that you might not have been able to do when you were busy and mired in your day-to-day activities. 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. But as important as it is to make sure your intake exceeds your outgo, budgeting can seem like sheer drudgery. Here is a different way to think about budgeting: Simply begin to take note of how various discretionary expenditures make you feel. It can be incredibly illuminating. Much of the scientific research about spending and happiness points to a clear connection between spending on experiences versus things. But 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 smart allocations of financial capital across opportunity sets—not just saving versus spending but also debt paydown versus investing in the market, 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 an even more scarce resource—our time—even though that allocation will ultimately have an even greater impact on whether we feel like we have met our goals. Of course, some of our time expenditures are pre-ordained—the time we spend working or caring for children, for example. But 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 are allocating your time currently is a good starting point. Technology tools can help you determine how much time you waste (er, spend) on social media and other activities that could be detracting from your productivity and happiness.

What is your own definition of “enough”?
Many of us are operating with an incredibly vague notion of how much we really need to save in order to achieve our financial goals and find security. And 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.

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 charity if we so choose. It is about making sure we do not burden the people we care about. Those are crucial considerations, and they are why everyone needs an estate plan that includes wills, powers of attorney, and beneficiary designations, among other key documents.

But 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.

 

© Morningstar 2020. All Rights Reserved. Used with permission.