As a couple that happens to both be financial planners, we are often asked by acquaintances at the grocery store or while picking up the kids from activities a variety of financial questions that run the gamut from budgeting, college planning, estate planning, investing tips, and on and on.
“Should I put money in my Roth IRA or invest in my company’s 401k plan?” “What is the best way to track my monthly expenditures?” “Should I cash out my pension and buy an annuity?” “I heard I should have a living trust, does that sound right?” “How should I be investing my money?” You get the idea.
While we have deep knowledge, opinions, and ideas about all of these topics and address them in depth with our clients, we often give the same unsatisfactory response to these acquaintances that consists of something like this. “It depends. I would have to know a little bit more about your particular situation.”
That’s right! Very underwhelming for most people, but the reality is that when it comes to complex financial subjects quick answers must be met with healthy dose of skepticism. Or at least they should be! Too often the quick answers come from those trying to sell you something rather than those truly trying to help.
While it may feel very satisfying to hear a quick response about how a hot tip or new financial product can help, in truth none of these questions lend themselves to abbreviated analysis and off the shelf answers. Financial concerns require deep understanding of the specific circumstances unique to the individual or couple. What we have observed over many years is that there are no two situations that are the same and when people are given a pat off-the-shelf answer and sent on their merry way, it really helps no one.
While you and your neighbor might be of similar ages in a similar stage of life (i.e. retired, have 2 kids and 4 grandkids), our experience suggests your financial circumstances will be quite different from your neighbor’s. To explain this phenomenon to our clients, we coined the phrase “unique financial fingerprint”.
To understand this better, let’s delve into the components of your financial fingerprint further. There are two main components – what we call the resources and the touchy-feely stuff.
The resources component is fairly straightforward. It consists of the facts and circumstances of your particular situation, including financial resources that you have available, and can range from the obvious to the obscure. What is your age? How much retirement savings do you have? Do you have a pension plan? Do you have concentrated or illiquid investment assets? Are you single, married, widowed, or divorced? What are your sources of income and anticipated expenses? What is the adjusted cost-basis applicable to your UPREIT interest? The list of items can be extensive, but you get the idea.
The touchy-feely aspects of the fingerprint consist of your motivations, values, and goals. And don’t let the flowery term in anyway suggest that we think this is not important – this is the good stuff!
When we talk about goals, most people are familiar with the concept. Do you envision RV-ing across the country when you reach age 65? Do you want to downsize your house, upsize your house or have no house? Do you want to leave a large inheritance to your children? Do you want to pay for your children or grandchildren’s education? Goals are only one aspect of the touchy feely stuff, and while critically important to financial decision making, they are arguably less important than why you have the goals you do. Goals that are fully supportive of one’s values and motivations create a sense of integrity and life satisfaction. Goals that are found to be contradictory often leave one feeling less satisfied, even when the goal is achieved.
“I want to have quality shared experiences with my family.” We have seen that one definitive statement put on paper, can help clients reorient their focus toward achieving highly fulfilling and rewarding life goals. As a guiding principle, statements such as these assist one in understanding and seeing other aspects of their financial lives for what they are, mere impediments or obstacles to achieving what is truly important to them, making each financial decision easier. Being clear about ones motivations and values opens multiple possibilities for formulating goals to achieve them. Some of these goals may be possible, others may not be. That’s ok! There are many ways to have quality shared experiences with your family – and that is the satisfying part. Can’t do it in Cancun, Mexico every year? No problem! Take the family to Black Butte Ranch, Oregon!
Statements such as “I want to be a contribution in my community” can have a similar galvanizing effect, opening new opportunities for fulfillment and assisting financial decision making. There are no right or wrong answers in the touchy-feely space, it is a place to understand what motivates you and how to best arrange ones resources to make it happen!
So why would a trusted advisor want to know all this stuff? The answer is quite simply, because it makes financial decisions making clearer and easier. A fact compounded when you are a couple.
We believe Karen Ramsey sums it up well in her book, “Everything You Know About Money is Wrong,” when she states:
“In personal financial management, the place to begin is to adopt a realistic perspective. Money will only improve the quality of your life when it is used with clarity. Only when you learn to spend money in concert with your underlying values—the things that you most deeply care about—will it become a tool for creating a more fulfilling life”
Once you are clear on your fingerprint, using money as a tool to fund your vision and values becomes very clear. So, before you can easily answer the questions of when should I file for social security or should I take this pension buyout offer, or should I buy a variable annuity with a guaranteed income component, you (and a good fee-only, fiduciary financial planner) need to understand the roles these particular tools may play in fulfilling your goals and dreams.
Jason A. Smith, CFP® and Karen Hausman Smith are wealth advisors for Hausman Advisors (www.hausmanadvisors.com) a Registered Investment Advisory firm with offices in Portland and Hood River, Oregon.