Do you find the idea of basic financial planning too limiting? Financial wellness often makes people think of something more than just a cookie-cutter financial plan. As a matter of fact, financial wellness planning is really about helping people reach their needs and goals.

I sometimes refer to financial wellness as dreams-based planning versus means-based planning. Means-based planning, for the record, allows financial planners to use things like replacement rates.

That talk track goes something like this: If you make $100,000, you’re likely going to need 60 to 70% of that number when you retire. There are usually certain assumptions built into this plan. That includes what your tax rate is going to be in the future. Things like you won’t have quite the same amount of expenses to go back and forth to work or the cost of things like dry-cleaning once you retire.

I don’t know about you, but means-based planning doesn’t really get me excited about thinking about my future!

Relying solely on mental accounting

I recently heard a potential client say that their spouse is hoping to sell his business and make a lot of money.  First of all, what is a lot of money? When selling a business you have to find a willing buyer who will pay you a premium for your business.

A premium that you may not even pay yourself if you were to buy your own business. Even so, when you’re ready to sell, the market for selling your business may not be that good. In fact, with history as our guide, there are many “now extinct” businesses due to things like plows being pulled behind horses no longer used in farming.

What’s your dream for your financial wellness?

Instead of planning on averages, it’s far more exhilarating to think about what would you like to do! And instead of anchoring on the dates when your Social Security will be available to you, why not think about anchoring on dates that include something like: “When can I become financially independent to live my dreams?”

That of course requires you to paint a picture of your dreams or “wants and wishes.” Do you want to travel across Europe or Africa? Some people say they want to live simply and just be able to visit children and grandchildren. I often find, that many times people are worried that if they dream too big, they will find out they won’t be able to achieve something bigger than the original objective. They tend to think:  “Well if I have some (dreams) left over, I could do more!”

I say “Paint the canvas with your dreams” —we’ll deal with the math later!

Setting up a financial wellness plan as a true life plan

Once a canvas of dreams is identified and clarified for a client, we can then move to figure out how much it will cost.

Let’s say your covering needs, on things like rent, groceries, utilities, etc., cost $50,000, and your dreams will cost another $50,000. That doesn’t factor in inflation. Let’s assume that your current budget funds your emergency fund, disability income protection, and income replacement life insurance. If it doesn’t, then we should address your financial foundation first!

Hypothetically, let’s say you need to save $3,000 into your 401(k), and getting the $3,000 match totals $6000. Additionally, you need to save $6000 on a Roth IRA.

Where will this funding come from?

Saving to fund your financial wellness goals often requires trade-offs

You may need to buy a less expensive car, in exchange for the ability to travel across Europe when you’re financially well and independent. Financial wellness and independence are not the same for everyone.

If you define being able to travel across Europe and willing to live in a one-bedroom home and not worry about running out of money for the rest of your life, then you have reached your definition of financial independence! For some, living without a five-bedroom house and the latest model car would be the definition of living in agony!

You may need to also restructure your expenses. Maybe that mode means downsizing in terms of house or car. Maybe that is installing some more energy-efficient tools in your home.

The benefit of this wellness (in other words, values and goals-based) approach is that it provides a framework to energize your daily, monthly, and annual actions. You can actually track your progress along the journey of pursuing your dreams!

The hardest part may be sticking to a plan. If that’s the case, you just might need a “personal financial trainer!” But prior to doing so, it’s best to get started on defining and creating a tailored, financial wellness plan.

Contact us today to see how our Envisioneering Financial Wellness Planning process can help propel you!

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