Financial Planning 101

If you are reading this, you’re interested and concerned about financial education. But why? Are you looking for financial protection, or is your goal to buy a house, a boat, finance your child’s college education?

Your answer matters.

While there is nothing magic about financial planning, it takes time to implement a strategy.

If your motivation is to satisfy a short-term goal of making a major purchase, how patient will you be? If your motivation is to improve your financial health, then you’ll have and get the stamina necessary to make a plan work for you. So, forget about the short-term goals. Focus instead on your motivations for reading this column and being interested in your own financial health.

What is important to you?

Let’s assume that what you want is self-sufficiency. What does self-sufficiency mean to you? Does it mean owning your own home, being able to retire and live at about the same level as if you were still working? What would make you most satisfied with your financial life? Where is your comfort level? Are you realistic enough to understand it is unlikely you will have as much money with the best and most perfectly executed financial plan as Bill Gates?

You need some ingredients here – the motivation list.

Make a list of your motivators – what you really want to achieve from your lifetime of financial planning. Get pretty specific about what you want. Identify your comfort level. Of course, this will likely change over the years, but to start, figure out what your list is today and we’ll use that list as something to work towards.

Here is an example of a motivations list prepared by Sue, age 33. Here’s what she says about her reasons for wanting a sensible, lifetime financial plan:

  • I don’t want to have to worry about money all the time. I want to know I’ve done the best that can be done to minimize money worries so that I am not and do not become a burden to my family or loved ones. I want to know enough of the basics to be able to create a money strategy and to execute it.
  • When I retire, I want to be independent. I don’t want my husband/ children/family to have to care for me. I want to pay my own way.
  • I want to be able to help my loved ones financially—like paying for a college education for my children. I want my plan to help me do that.
  • I want my plan to help me pay off my house so that when I am older, I won’t have mortgage payments to worry about and I won’t have to place any burden for my mortgage payments on someone else.

What do you see in Sue’s list? Clearly, she’s concerned about having and keeping money. It seems to Sue that money worries upset her – she fears lack of money. OK, that’s fine as a motivator. But why? What’s going on in Sue’s life that causes such worry? What Sue needs to do is delve deeper into her list. Like the following:

  •  I worry about money all the time. About having enough to pay off my bills. They seem to come at me from nowhere and pile up. I lose sleep at night worrying about where I will find the money to pay all the bills.
  • I cannot seem to control myself or this situation. I feel I am a burden on my loved ones, my family since they often loan me money – I know they can’t afford it. Why can’t I learn to control this thing with money?

Whoa! Sue’s deeper list contains something important. Control. Sue’s relationship with money is out of control. She feels she cannot control the relationship she has with money. Now we get to a real motivator for Sue. Suppose she got control? Suppose she learned enough to manage her relationship with money? Feeling that control, exercising a newfound power over money and its relationship to her, now that’s a true motivator for a lifetime of financial planning. Sue can do it and so can you.

See what I mean about the motivations list? Start with a list, then read and re-read it and try to get to a deeper list. Be cruelly honest with your feelings. Identify why you want a lifetime financial plan. Getting to the why is half the battle. Learning how to plan and executing the plan are easy compared to identifying why you want the plan.

Remember Scarlet O’Hara in Gone With The Wind? To paraphrase, her famous quote: “As God is my witness, I’ll never go hungry again!” Freedom from hunger is a true motivator. No one who has felt real hunger ever wants to be hungry again. But, is it fear of hunger pangs that is the motivator, or is it really the powerlessness of being unable to feed yourself? Lack of power over your circumstances – that control thing again, that appears to be the true motivator. Maybe that’s why the generation of the 1930’s, the Great Depression, were better savers than later generations. Because many of them went hungry, lost control over their life situations, they tended to set aside a portion of their income in savings to provide a cushion against similar experiences.

If you think you’ll never be able to achieve your financial plan because of a lack of education about finance, think again. You can learn about finance. But you will only stick with a financial plan if you learn first what it is that motivates you.

It all begins with motivation. Why is having a financial plan important to you? Your motivations must be honest to you. Find out what motivates you. Complete this list, re-read and refine it until you are satisfied that you understand what truly motivates you to create and follow a lifetime financial plan.

Write down five factors that motivate you to create a financial plan. Now, review your list. Is there any common denominator to the items on your list? Is there something else going on here? Like Sue, is gaining control a primary factor that will motivate you to create and follow a lifetime plan?

Remember—we want to identify your motivating factors in your relationship with money. What causes you stress about money? What would make you feel more secure? If you can answer those questions, you will be able to commit yourself to creating and following a lifetime financial plan.

About the Author: Lyn Striegel is an attorney in private practice in Chesapeake Beach and Annapolis. Lyn has over thirty years experience in the fields of estate and financial planning and is the author of “Live Secure: Estate and Financial Planning for Women and the Men Who Love Them (2011 ed.).” Nothing in this article constitutes specific legal or financial advice and readers are advised to consult their own counsel.