Real Financial Planning - Living in Alignment



Real financial planning is the process of aligning your money with your life.


In this month’s article, I am going to show you how your values can create a better financial plan and ultimately drive better financial behavior.



Identifying Values

One of the first steps in financial planning is creating goals. However, before you create goals, identifying your core values can help establish the why behind the goals.


When working with clients, I direct them to either James Clear's list of values or the list on Think2Perform. From those lists, I encourage clients to select their 4 or 5 core values. While many of the values may seem appealing, narrowing down helps prioritize. Prioritizing is important because our financial resources are limited. Money and time, the two scarce resources in planning are not abundant. Both will eventually be depleted. Learning to prioritize is an incredibly important skill in financial planning as well as in life.


Once your core values have been selected, you can work on building out specific goals that reflect those values.



Close the Gap

We all have an ideal image and ideal state about ourselves. Sometimes, our ideal self is miles apart from reality. In behavioral finance, the alignment model helps bridge the gap between our present and ideal state. A lack of alignment or gap can lead to stress and procrastination on our financial goals. There could be a gap in how you spend, how you save, your investment strategy, or how you allocate your time. Your values can help close the gap.


By identifying your values, it becomes easier to make important financial decisions. For instance, if I’m about to make a big financial decision such as buying a home, rather than just asking, “Is this a good use of my money?”, I can ask, “Is this in alignment with my values?”


An alignment model can also influence how you save money. Let’s say, flexibility and independence are important values to you. Based on that, you may want to set aside a bucket of money to be used to support that value whether the end goal is your own business, more travel, vacation home, etc. This also provides more motivation to stay the course. Once the value and goal are established, you can then create a plan based on how that money should be invested, and when it should be spent.


The idea behind this method is that if we live and work in alignment with our values, then we're more likely to use our financial resources more efficiently and have fewer money regrets.



Spending Exercise

One way to improve your financial health is to spend within your values. The average person makes thousands of financial decisions a year. There's a good chance many of those decisions were either impulse buys, emotionally-driven, or decisions that later created buyer’s remorse. In the age of one-click buying and ubiquitous advertising, it’s easy to forget the why behind our spending.


Here’s an exercise that can work very well:


Pull up your bank and credit card transactions from the last 2-3 months and go through every single line item to:

  • Highlight in green all the spending that supported your core value and/or that makes you feel satisfied.

  • Highlight in yellow things that you somewhat value, but don’t feel extremely excited about.

  • Highlight in red anything that, looking back at it, leaves you feeling a little disappointed and regretful.

First, identify all the purchases you highlighted in red. These expenses are the low hanging fruit that can usually be removed from your budget. Next, sort through your purchases highlighted in yellow. Try attaching a core value to these spending decisions. Repeating this exercise twice a year can be a great way to audit your spending habits.



Closing Thoughts Whether you plan or not, your finances will play a major role in your life. By spending a little bit of time defining your values and priorities, you can better align your money. Through the years and during life transitions, your values and goals may change. It’s important that your financial plan be continually updated to reflect those changes. For everyone, I recommend establishing a relationship with a Certified Financial Planner (CFP) and ideally a CFP® Professional who understands goal development and behavioral finance.


If you’re looking to better align your values to your money, reach out for a complimentary consultation.