by David Bach
If taking this quiz—or reading some of the myths and facts about money I presented earlier in this chapter—has left you feeling a little bummed out, I apologize. I personally can’t stand negativity. In fact, I make it a policy to stay away from negative people. I believe they are like people with colds or the flu: if you spend too much time with them, you run the risk of “catching” what they have (i.e., their negativity).
But I started off this book with some cold, hard reality because I know that, as a couple, you want your life to be truly amazing. You want to live and finish rich, and you want to realize your dreams. You don’t want money to hold you back; rather, you want it to lift you up. You believe in your relationship, and you believe in yourself, and you know deep down that you’re smart enough to figure out how to make it all work for you.
Perhaps most important, you’re looking to make a change in your life. That’s why you purchased this book—because you are truly motivated to change for the better. But change takes action, and sometimes it takes pain to get motivated enough to take action. Sometimes it takes getting to a point where you say to yourself, “I’ve had enough. I want more out of life.” Or you say, “Enough is enough, I’m not going to continue down the path I’m on.”
Change is a funny thing. Although most people say they want to change—so they can have a better life, with more love, more dreams, and more fun—the fact is that many of us are afraid of change. Faced with the real prospect of it, we look at our lives and decide that being where we are right now isn’t so bad, after all. Better the devil you know than the one you don’t, we tell ourselves. Tony Robbins, the great motivational speaker and coach, calls this attitude a kind of “no man’s land” of the soul. It’s a place where your life isn’t really that great, but it really isn’t that bad, either. It’s just so-so.
Well, I happen to think that life should be better than “not that bad” and more than “just so-so.” Life should be exciting, challenging, and—ultimately—fulfilling.
By now, I hope this chapter has motivated you to start the process of taking action. Don’t let those negative statistics I mentioned get you down. Remember, those averages don’t have to be your reality. After all, you and your partner are not average! So stay motivated.
Now let’s turn to Step Two, and continue your process of learning how to figure out what matters most to you and your partner when it comes to money.
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*To run your own calculations go to www.investor.gov and search “compound interest calculator”—if you want to see what lower rates or higher rates would look like, plug them in.
STEP 2
DETERMINE THE
TRUE PURPOSE
OF MONEY
IN YOUR LIFE
As a financial advisor, I specialize in doing what we call Purpose-Focused Financial Planning™. What this means is that before I start trying to figure out how much money my clients may need for their future, I first help them try to get a clear idea of what they see as their purpose in life.
This concept often surprises people. The media and the investment industry have gotten us so focused on what they call “retirement planning” that everyone thinks personal finance is all about determining how much money you need at retirement. In fact, most people assume that when they meet with a financial advisor or planner the conversation should focus on specific investments, net worth calculations, tax rates, and how many years they will have to work before they can retire. While all these things are important, they are not what is most important. What I believe is most important is first having a conversation about what it is that matters most to you. What is it that you stand for and what is it that you care most deeply about? In other words, what are your values?
YOUR LIFE VALUES SHOULD DETERMINE EVERY LIFE DECISION YOU MAKE
Stop for a second and really think about it: is there anything more important to you than your values? Where you live, how much you spend, what you focus your time and energy on—all are affected by your values. Your values color how you communicate with your partner, how you raise your children, and how you feel about what you have in your life. Your values can determine how hard you are willing to work to achieve your financial goals, how much money you currently spend, and how much money you will actually need at retirement. This is why I can tell you with total certainty that once you have a clear picture of what you value most in your life, you’ll be able to create a truly meaningful Purpose-Focused Financial Plan.
To this end, Step Two of our journey to finishing rich involves learning how to understand what your values really are. Once your values are clear to you, it will be easy to decide what kind of “stuff” you want and what sort of things you want to do (which we will cover in Step Three). Perhaps most important, once you and your partner have clearly and specifically defined your values, you’ll find yourselves much more motivated to put in the effort it takes to stick to your new Purpose-Focused Financial Plan.
The best way to explain the process of defining your values is to give you a peek at what it looks and sounds like when I explain the concept at one of my seminars.
LIVE FROM HAWAII—A “SMART COUPLES FINISH RICH” SEMINAR!
Recently, I gave a “Smart Couples Finish Rich” seminar in Hawaii. The event was held on behalf of a company that wanted to reward its top employees and their spouses or significant others. When I walked into the seminar room, I found it filled with couples ranging in age from their mid-thirties to their mid-sixties. Some were newlyweds, while others had been together for more than 30 years and had multiple kids and grandchildren.
I began the seminar by introducing myself and then asking a question. “My goal,” I told the group, “is to share with you how you can do two things: (1) live rich, meaning live a life in line with your values, and (2) finish rich, meaning be able to retire with at least a million dollars in liquid assets.”
Then I asked my question: “How many of you are basically in favor of both living and finishing rich?”
Just about everyone in the room laughed and raised their hands.
I then told them what I just told you at the beginning of this chapter—namely, that in order to figure out a sensible and meaningful plan for living and finishing rich, we first need to understand what our values are. “To do this,” I said, “let me ask you all a really simple question:”
“WHAT’S THE PURPOSE OF MONEY IN YOUR LIFE?”
“When you think about money in the context of your life and the things that are important to you, what purpose does it serve?”
The room was pretty much silent, so I repeated the question in a slightly different form. “When you think about the way you live, what are the values that money enables you to fulfill?”
Most everyone was still looking at me blankly. “Okay,” I said, “I’m going to help you out a little bit with a cheat sheet.” Using an overhead projector, I showed them a list of values. It included words and phrases such as “freedom,” “happiness,” “love,” “health,” and “making a difference.”
“These are some examples of values,” I explained. “Now let’s see what each of you can come up with. When you think about your lives, what values are important to you? What is it that you’re looking for in life?”
A woman in her early thirties raised her hand. “Teaching my children how to be good people,” she said.
I turned to the whiteboard and wrote that down.
Then her husband chimed in. “Security,” he said. “Knowing we are secure and our family is safe.”
I wrote that down, too. “What about the rest of you?” I asked the group. “What is your purpose for being here on this planet? Why do you think you’re here?”
“To have fun!” called out a woman in her fifties.
“Freedom!” a man shouted. “I want the freedom to do what I want to do when I want to do it.”
“Yeah,” agreed another man. “Like having the freedom to stay in Hawaii for more than five days.”
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Everyone laughed. “ ‘Having fun’ and ‘freedom’ are values,” I said, “but staying in Hawaii for more than five days is more of a material goal. The question is, if you could stay in Hawaii longer than five days, what value would that allow you to live by?”
The man’s wife grinned broadly. “Viagra!” she shouted.
Now the room was cracking up. This guy turned bright red, and so did I. “Actually,” I said, “you may be on to something. Maybe staying in Hawaii longer than five days would be good for your relationship. So the value here might be passion, love, or romance.”
“Forget about romance,” called out a sandy-haired man named Tom. “Staying in Hawaii more than five days would mean I could play more golf. That’s what I want to do with my time.”
I wrote “golf” on the whiteboard, but then I circled it. “Golf is a goal,” I said to Tom. “The question is, what values does golf allow you live by?”
Tom shrugged. “Well, I don’t know,” he said, “but it’s fun.”
I wrote down the word “fun,” then turned back to the group. “How many of you play golf?” I asked.
More than half the people in the room raised their hands.
“Okay,” I continued, “those of you with your hands up, what values does golf provide you with?”
A fit-looking woman in her forties stood up. “It gives my husband and me a chance to spend four consecutive hours together,” she said. “So it’s a great way to have quality time with each other and also be outside doing something healthy.”
“Great,” I said. “So what values are those?”
“Well, for me, I guess it’s the values of marriage and health.”
“And the values of marriage and health are important to you?” I asked.
She nodded, and I wrote “marriage” and “health” on the board.
Then another woman spoke up and said, “I think spirituality is an important value. I think it’s important to have a spiritual life.”
So I wrote down “spirituality.”
Yet another woman joined the conversation. “I like to spend time helping others and making a difference,” she said.
No sooner had I finished writing down “make a difference and help others” than someone else called out another value, followed by another person, and then another. Within 10 minutes, we had filled two entire whiteboards with something like 30 examples of values people in the room said were important to them.
When things finally quieted down, I let everyone just look at the list of values for a minute. “That wasn’t so hard, was it?” I asked.
Most everyone nodded in agreement.
“Well, now let’s try something else,” I continued. “Instead of coming up with values, let’s think about the kind of stuff you want. What material things would you like to have that money can buy?”
The room just about exploded. “I want a new car!” a man called out. “No, jewelry!” his wife shouted. Everyone laughed. “That’s right,” another woman said. “More jewelry!” Then a second man said he wanted a new boat, followed by a woman who said she wanted a new kitchen. The guy who’d earlier talked about golf said he wanted to play more golf. And the woman who had mentioned Viagra yelled, “More Viagra!”
By now everyone was laughing and having a good time. And the suggestions kept pouring out. Whereas it had taken us a little more than 10 minutes to come up with 30 or so values, it took us less than three minutes to compile a list of maybe 30 different kinds of “stuff” that people wanted to buy.
“You know,” I said, “it’s always interesting to me how easy it is for us to list the kind of stuff we want to own versus the kind of values we want to live by. Yet the truth is that it’s a lot more important to understand what your values are and to live your life by them than it is just to have stuff. Unfortunately, too many of us spend our lives pursuing stuff, without really looking at our values. And you know what that leads to?”
“Credit-card debt!” a woman called out.
We all laughed. “Well, that too,” I said, “but actually I was thinking of something even more serious that happens when you spend 20 years focused not on your values but on getting more stuff. What happens is that it leads to a midlife crisis, which generally leads to all sorts of unhappiness, including divorce. The truth is that most midlife crises occur because people get to a certain age with all this stuff they’ve accumulated and suddenly it hits them that their stuff isn’t really making them happy—that this stuff they’ve spent all this time and effort getting is actually the wrong stuff.”
I went on to explain that this almost never happens to people who’ve got their values straight. “After all,” I told the group, “how often does someone get to their fifties and look around and say, ‘Well, I’ve lived my life in line with my values, but now I don’t think I like my values anymore, so I guess I’ll get divorced and start over’? Hardly ever.”
In short, I concluded, values are the key to living smart and finishing rich. The sooner you and your partner start putting your values first—and stuff second—the sooner the two of you will start living a life that excites and empowers you both. That’s because when you understand your values, you tend to live the life you really want almost automatically. Instead of having to “motivate yourself” to do the right things, you find yourself being pulled in the right direction by the power of your values. Stuff may be nice, but it rarely pulls us anywhere worthwhile. Only values can do that.
WHAT’S REALLY IMPORTANT TO YOU?
As a financial advisor, I’ve learned that when all is said and done, money is good for three basic things. It helps people…
Be
Do
Have
Let me explain what I mean by this. When I say that money helps people be, I mean that it allows them to live in a particular way that defines who they are. When I say that money helps people do, I mean that it makes it possible for them to take actions that will help create the kind of lives they think they want. And when I say that money helps people have, I mean that it enables them to buy stuff.
Now, in an ideal world, the lives we lead, the things we do, and the stuff we buy would always be in line with our values. The challenge as I see it is that most people focus first on the “having,” second on the “doing,” and third on the “being.” Which means that many people, even ones who use financial planners, go about it all backward. Even worse, many people never even get to the “being” part. They spend so much time on the “having” and the “doing” that they never look up to see whether who they are is who they want to be.
In order to create a sensible Purpose-Focused Financial Plan, you must understand what money means to you, what values it can help you achieve. Once you know this, you can quickly focus your time and energy on what matters most to you—not what society, friends, or advertisers say matters, but what you say matters. To put it another way, the process is basically a matter of looking really deeply at what is most important to you, and then planning your finances around that. If it sounds like we’re talking about more of a life-planning process than just a money-management process—well, quite frankly, that’s what smart financial planning is really about.
WHY MOST FINANCIAL PLANNING TOOLS DON’T WORK
Consider this scenario. You are 45 years old, your income is currently $50,000 a year, and you’ve got $25,000 in the bank. You come to see me for retirement advice, and I plug those numbers into my fancy retirement-planning software. A nanosecond later, my computer tells me that you will need a lump sum of $1.5 million in order to be able to retire comfortably at age 65.
While you stare in disbelief, I ask my program what kind of savings and investment program you’re going to need to set up in order to accumulate a lump sum like that. The computer hums silently, then tells us that if you can create a portfolio that generates an annual return of 8 percent, all you need to do to build an after-tax nest egg of $1.5 million is invest about $40,000 a year for the next 20 years.
“But, David,” you say, “I only make $50,000 a year—and that’s before taxes.”
“Hmm,” I say, frowning. “That’s a problem.” I think for a moment, then brighten. “Well, don’t worry. We’ll just give your investment portfolio a higher return—say, 15 percent a year.” I plug that into the program, and the computer decides that under these circumstances, you will need to save just $17,000 a year.
“But David,” you say, “there’s no way I can invest $17,000 a year—and, anyway, a 15 percent return is just not realistic.”
“Oh,” I reply. “I guess you’ve got a point.” I think for another moment. “You know,” I finally say, “any chance of an inheritance?”
Don’t worry, I’m not really that ridiculous with my clients. The reason I created this scenario is to illustrate what can happen if you do financial planning strictly by the numbers, instead of by the life. What can happen is that you can all too easily convince yourself to not even bother trying. I constantly meet people in their fifties who gave up on their financial future in their late thirties because they felt it was already too late for them and there was no hope. That’s sad, because it’s never too late.
The point is that smart financial planning is more than a matter of numbers. It involves values first and stuff second. Let’s say you value security, but you and your partner are constantly spending more than you make as a couple. As a result, the two of you are living paycheck to paycheck. In other words, you are living your lives in massive conflict with your values, which creates massive stress. In a relationship, this can result in constant fighting and an end to passion.
Now, situations like this don’t just happen. They are the result of repeated decisions and actions (like regularly spending too much money) that conflict with your value system. Your financial behavior simply doesn’t match your personal values.