by David Bach
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.
And don’t think the problem is simply that you’re not making enough money. Let’s say your value is freedom, which to you and your partner means having the time to exercise every day and go on long walks together. Unfortunately, what you’re actually doing is working 60 hours a week, which means you never have a chance to exercise or see your partner. Now, you may be enjoying financial success (in the sense that you’re making a lot of money), but how likely is it that you’re happy? Not very, because your life doesn’t match your values.
Or consider this common dilemma. Your top value is family, but you are so busy working in order to be able to meet your mortgage payments that you never actually see your spouse and kids. Someone talked you into buying a bigger home than you could afford, and now you are paying the real price. No one (including you) considered your values when you purchased the house. Unfortunately, when you make big life decisions like that without considering your values, what you end up with is stress and unhappiness. No one wins.
So how do you get a clear picture of what it is you are looking for in life? Well, the good news is that you don’t have to go into deep therapy, meditate, or be hypnotized. You don’t have to delve back into your past and find out where you went wrong. You don’t have to recite mantras 10 times a day in front of a mirror. All you need to do is decide what you think your top five values are, write them down, and then start planning your life around them.
What is great about this process is that it’s really not that difficult. In fact, it shouldn’t take you more than 10 minutes or so. The reason it is so easy is that most people actually have a pretty good feeling—what I call “gut knowledge”—about what their values are. And to help you along, I’ve devised a simple technique using something I call the Value Circle™.
To get a feel for how this works, I’m going to let you eavesdrop on a real-life Purpose-Focused Financial Planning conversation I had with a client. By listening in, you should get a good sense of how the process works. Once you do, I’ll show you how to create a Purpose-Focused Financial Plan for yourself.
CONSTRUCTING KIM’S VALUE CIRCLE
Bill was 38; his wife, Kim, was 35. They had two little girls, ages 5 and 7. I started the conversation as I always do in such situations, asking, “Who wants to go through the Value Circle first?”
Kim immediately looked at Bill and then back at me. “I do,” she said.
I nodded. “You know we’re going to talk about money today,” I began, “but before we do, let’s talk about your values. When you think about your purpose in life and the things that really matter, what’s really important to you? Specifically, what do you feel are the top five values you’d like to start focusing your time and energy on over the next 12 months?”
Having already attended one of my seminars, Kim didn’t need a lot of prompting. “Definitely one of my biggest values is security,” she said. “I was raised in a family that never had enough money, and I’m constantly in fear of not being able to pay our bills. So one of my top values is security.”
I wrote down the word “security.” “Now let’s assume you had security in your life,” I said. “What would be so important about having that security?
Kim said, “Well, if I had security, I would know that my family is always safe—that if anything happened to me, the girls would be taken care of. That is really important to me.”
“So would you say family is a top value of yours?” I asked.
“Definitely,” Kim said.
I wrote down the word “family.” “And what’s important about family to you?”
Kim smiled. “We have the most wonderful, beautiful girls, and I want to see them grow up to be happy, well-adjusted kids and, eventually, happy adults.”
“Okay,” I said, “let’s see if we can turn that into a value you can focus on. Assuming your value of family is fulfilled and you raise great kids, what else is important to you?”
Kim immediately looked at Bill and squeezed his hand. “Well, Bill, of course,” she said. “I want us to have a happy, lasting marriage like our parents did, where we grow old together. We already have friends who are getting divorced, and I don’t want that to happen to us. So definitely a major value of mine is a strong marriage.”
Bill smiled back at her.
“So one of your top five values is marriage,” I said. I wrote that down, too. “Now let’s say you are living in a way that really expresses your values of security, family, and marriage. What else is really important to you? If you were fulfilling those top three values and you could add two more to your Value Circle, what would you want to focus on?”
Kim looked hesitant. After a moment, she glanced at Bill. “Any ideas?” she asked.
I shook my head. “We’ll get to Bill’s values in a minute. Right now it’s still your turn. If you could focus your time, energy, and passion on two more values, what would they be?”
Kim sighed and said, “Well, I guess I would also want to focus on my weight. I’ve gained about 20 pounds since I first had kids, and I feel bad about it. I know I need to lose weight, but I never seem to have the time to exercise, so let’s put down exercise.”
Again, I shook my head. “Exercise isn’t really a value. It’s something you do. Think about it this way: what’s a value that exercise would promote?”
“Health,” Kim said with certainty. “Health is definitely a top value I need to focus on.”
“Health,” I echoed, writing it down. “Great. And if you had health, what would be the last of your top five values?”
Kim frowned in concentration. “That’s a tough one to answer. I think if I had really great health and all of those other values…I don’t know—I guess I’d want to spend some of my time just having more fun.”
“Well, fun is good,” I said. “What does that value ‘fun’ mean to you?”
“Well, before Bill and I had kids, we used to be more spontaneous. We would go away on weekends and travel more. We had dates together. We did more things with our friends. It seems like a long time ago, and I’m not complaining because I love being a mom, but between my job, Bill’s job, our house, and our two daughters, it doesn’t seem like we have much time for ourselves anymore. I’d like to think there could be a way for us to start planning more fun time together.”
“So fun would be a value you’d like to focus on?”
Kim nodded vigorously. “Fun sounds great. Let’s definitely put that down as a value.” She paused for a moment. “You know,” she added, “I also really value my career, and we haven’t put that down. Can we add career, too? Because I really want to focus on that, too.”
“Kim,” I said, “we can put down whatever you want. But for the purpose of this exercise, ideally I’d like you to focus on your top five values. So far we’ve put down security, family, health, marriage, and fun. Is your career an important enough value that it should replace one of these?”
She thought for a moment. Kim worked for a software company that had recently gone public, and she earned a decent income. “To tell you the truth,” she said finally, “if I focus on my career, the value of security is going to be taken care of. So I think I’d almost rather substitute career for security.”
“Okay,” I replied, “but let me ask you something. Is it your career that you value, or is it the security that your career brings you?”
Kim didn’t hesitate. “Both,” she said. “I consider it one value.”
“Perfect,” I said. “We’ll put ‘security/career’ as one value in your Value Circle.”
CONSTRUCTING BILL’S VALUE CIRCLE
Now it was Bill’s turn. He laughed when I gestured for him to start. “Can I just say ‘ditto’?” he asked.
“No, Bill,” I said
with a smile, “you can’t just say ‘ditto.’ ”
“Well, you know,” he replied, “Kim and I do have a lot of the same values.”
“I’m sure you do,” I said. “But we still need to do this. You need to think this process through, hear yourself talk about your values, and then see them written down on paper. So just play along for five minutes, okay?”
Bill nodded. “The truth is,” he began, “when I think about all these things we’re talking about—values and purpose and money—security isn’t really something that I’d put at the top of my list. I know we’ll always have a roof over our heads. We’re making decent money and I’ll always be able to find work.” Bill was a contractor, and with the economy booming, his firm had more clients than it could handle. “What I really want is more freedom,” he said. “My business requires me to work six days a week, watch over a crew of 20 men, and deal with all sorts of headaches. I want more freedom in my life.”
“Okay,” I said, “let’s put down ‘freedom.’ Now, assuming you had more freedom in your life, what would your next value be?”
“If I had more freedom, I would have more time. That’s what I really want, you know—more time to do what I want to do, when I want to do it.”
“Which would be what?” I asked.
Bill shook his head sadly. “I used to windsurf and play golf, and now I don’t do either. You know, I haven’t picked up a golf club in three years. That’s pretty sad when you think about it. My company is doing well, but I don’t have any time to do anything but work.”
I nodded sympathetically. “And if you could play golf more and windsurf more,” I asked, “what value would that promote in your life?”
“Well, just like Kim, I’d like to have more fun again,” Bill said. “We are both doing well, we have a nice home, we’ve got two gorgeous girls, but we don’t ever do anything fun anymore. Our life is boring.”
“So what’s the value, Bill?”
He looked at me and almost bounced out of his seat. “Excitement!” he boomed. “I want more excitement in my life.”
Kim laughed. “Sure you do, Mister-watch-television-every-night-exciting-guy.”
I had to laugh a little, too. “Okay,” I said, “let’s put down ‘excitement.’ Now what else, Bill? If you had freedom and excitement in your life, what other values would you want to be living by as well?”
Bill looked over at Kim. “Well, definitely family and marriage. But I consider those one value. To me, if I have a good marriage I’m going to have a good family. And if I don’t have a good marriage, it’s going to be hard to have a good family. So let’s put them down as one value.”
I nodded and did as he asked.
Then Bill turned a little sad. “You know what my next value would be?” he asked. “It would be friends. I barely see my buddies anymore. I’ve got all these great friends, and we almost never talk or do anything together anymore, we’re all so busy with our families. I really miss going out with them every once in a while, and shooting the bull.” (“Bull” wasn’t exactly what he said, but you get the idea.)
I wrote down “friends.” “You’ve got one more, Bill,” I said. “What other value is important to you?”
“That’s easy,” he replied. “My parents. They live about a thousand miles away, and they can’t really afford to visit very much, so my kids hardly ever get to see their grandparents. I’d really like to make an effort to talk to them more and see them more.”
“So is ‘parents’ a top-five value for you?” I asked.
Bill looked at Kim. “I know we’re really busy, honey, and the money is a little tight, but I do need to figure out a way to focus some more time on them. You know, they’re not going to be here forever.”
“Of course, that’s fine with me,” she said. “But you know, it’s not just about us taking a trip to see them. There is a phone in our house, they have e-mail, and you can also write letters.”
“I know,” Bill said, almost guiltily. “You’re right.” He turned to me. “For now, let’s put down ‘parents.’ ”
“Great,” I said. “Then you’re done.”
DOES YOUR FINANCIAL BEHAVIOR MATCH YOUR VALUE CIRCLE?
Now, while I was writing down Kim’s and Bill’s values, I wasn’t just making a list. I was creating Value Circles for each of them. Here’s what they looked like (see this page).
Notice that I wrote down Kim’s and Bill’s top five values not in a column but in a ring. There’s a starting point to this ring, but there is no ranking. That’s because we don’t want to suggest that any one particular value is more important than any other. This reflects the fact that if you don’t put a fair amount of effort into all of your top values, your life can become unbalanced. For example, we all know people who are great at creating security in their lives (that is, making lots of money) but who wind up getting divorced, their kids hating them, their physical condition a wreck—all because they didn’t spend enough (or any) time cultivating any other values, like family, or fun, or health. The Value Circle not only allows you to see—and as a result, think about—what your top five values are, it also serves to remind you how important balance should be in your life.
Now, what does all of this talk about values have to do with money? Well, let’s look at what we discovered when we compared what Kim and Bill said were their values to the way they were actually living their lives. The first value Kim mentioned as being important to her was security. When I pressed her on the subject, she explained that what she really wanted was to know that her kids would be protected if anything happened to her. As it turned out, however, when I looked into Bill and Kim’s financial situation, I discovered that they had never bothered to draft a will or set up a trust, and that while they did have life insurance, they hadn’t bought nearly enough coverage. In short, they were hardly living by their values of security and family.
When I pointed this out to them, they looked embarrassed. “Yeah,” Bill said, “we know we’ve needed to do something about this. We’ve just procrastinated. Pretty dumb, huh?”
“Actually,” I said, “it’s perfectly normal. Wills and life insurance are almost always a ‘do’ item. Hopefully, now that you’ve looked at your values, they will become a ‘must do’ item, not a ‘shoulda, coulda, woulda’ item.”
In a similar fashion, we worked through all the values they listed—looking to see whether their financial behavior was consistent with what they had identified as being most important to them. For example, when Kim admitted that the reason she wasn’t working out was because she didn’t feel like spending $50 a month on a gym, I pointed out that $50 a month was a small price to pay for a top-five value.
By the same token, when Bill thought about spending time with his friends, he realized that the main reason he didn’t do it as often as he liked was because he always thought of it in terms of a major “guys’ weekend,” and most of his friends couldn’t get away for that long or didn’t want to spend the money. “You know,” he finally said, “I don’t know why I make such a big deal about this. I could just organize a monthly golf Saturday. We all like golf, and we can go to a public course.” He grinned at Kim and me. “That gives me two values—friends and excitement—for the price of one.”
“That’s called value synergy,” I said. “Often, promoting one value also helps fulfill another.”
Kim, who had been sitting silently, lost in thought, suddenly spoke up. “Bill,” she said, “you know how we’re always complaining that we don’t go anywhere because our big vacation costs so much?” She looked at me. “We generally take one big trip each year,” she explained. “Last year we actually spent $5,000 going to Hawaii.” Then she turned back to her husband. “You know, I’d almost rather go on three or four little weekend trips than a single big one. We could even just go camping. We’d get away more, we’d have probably the same amount of fun, and we’d spend a lot less money.”
Kim went on to say that what she called �
�that ‘spending money’ thing” was a major source of stress for her and Bill. “I think we spend a lot more money than we need to,” she said. “That’s another reason I think we work so much. I’d like to see us get our expenses under better control so we could figure out a way to focus more on the things that matter to us—all this stuff we listed on those Value Circles.”
KIM AND BILL’S BREAKTHROUGH
Kim and Bill got more out of the Value Circle process than just a few general ideas of things they needed to do. They actually got a complete, detailed Purpose-Focused Financial Plan. This consisted of a sheet of paper on which we listed the five values each had decided to focus on over the coming year. Next to each of the values, we wrote down five matching “do” ideas—that is, actions they needed to take in order to bring the way they lived their lives more into harmony with their values. (We’ll cover how to do this in the next chapter, Step Three.) And next to those “do” ideas, we wrote down matching “have” ideas—that is, specific material goals that living according to their values would allow them to achieve.
This process may seem simple, but don’t be fooled. It can also be very powerful. Indeed, within five weeks after completing their plan, Bill and Kim finally had a lawyer draft a will for them—something they had talked about doing for nearly five years but never managed to get around to. They also increased their life insurance coverage. Kim joined a gym. Bill planned his first golf Saturday with his buddies. And they worked out a plan to cut back on their spending.
The point is that doing this simple exercise got them to focus on what really mattered to them in life—to see through the clutter so they could concentrate less on having and more on being. Money is great to have, but all the money in the world won’t make you happy if what you do with it conflicts with your values.