Let’s Talk Money

In the book “Smart Couples Finish Rich” by David Bach (a good read by the way), he makes some very interesting points to think about before actually dealing with your finances.

First off, you need to have a plan.

We have all heard the saying “If you fail to plan, you plan to fail”. And so it is with financial planning too.

He highlights 3 fundamental truths of financial planning:

1. You can’t plan your finances if you don’t know where you’re starting from (so you need to get organized ; find your statements, figure out your debt, your assets, your income etc. and make a good file system).

2. You can’t plan your finances if you don’t know where you want to end up (so you have to talk to your partner about it – or at least talk to yourself about what you want).

3. In order to stay on track from your starting point to your destination, you have to monitor your progress (constantly re-aligning with your compass to make sure you are on track).

Before you dive into figuring your numbers out, you need to figure out “what is important to you” and your partner (essentially – start with number 2). Bach suggests that “smart financial planning is more than a matter of numbers. It involves values first and stuff second”.

He argues that couples (remember this is the “couples” version of his book) who spend 20 years focused on getting stuff rather than on values end up having a mid life crisis…which generally can lead to all sorts of unhappiness. He reasons that most mid life crises occur because people get to a certain age with all the “stuff” they have accumulated and suddenly it hits them that their stuff isn’t really making them happy. This almost never happens to people who’ve got their values straight. How often does someone get to mid life and look around and say “Well, I’ve lived my life in line with my values, but now I don’t think I like my values anymore, so I guess I’ll get divorced and start over”.

So, you need to plan your finances around your values.

This was a very interesting idea to me…leading your life according to your values is a common philosophy, but planning your finances according to your values? Hmmmm….

What you value dictates (or it should) how you spend your money. If you and your spouse have different values, then you may have some money conflicts. So, that is why you need to sit down and discuss your values together.

When you are spending according to your values, then you feel less guilty when you actually spend because it is in line with your core.

For example, if one of your main values is “security”, and you have no savings, but are spending all your money on clothing or cars, then it may not feel great to spend. If you value health, and you refuse to put out for a gym membership, then that is not in sync either. If you value family and spend all your time working 90 hours a week so you can afford the mortgage on that huge house, then things are out of balance. You start feeling miserable.

I always hear from people that we are so lucky that we vacation so often.

And yes, we do travel a lot and are very lucky.

But that is because it really fits in with what we value most. I guess that is why I don’t feel the least bit guilty about it.

I associate vacations with marriage and family. Marriage and family are top values to me. I also value fun and adventure. Travel fulfills that.

I also love to plan the travel. It is an every day enjoyment to me. I love researching our next place, finding the best deals, unique places to stay, things to do etc. So travel is an everyday enjoyment for me.

My job is also extremely emotionally draining, and “vacation” time helps me re-fuel. It’s good for me as a person, as a wife and as a mother. (Pretty good justifications… but it really is true)!

We are also fortunate to have good salaries. Of course, everyone always jumps all over that one: “Aha, you see. You can afford to travel”.

Well, yes and no.

Travel gets a huge portion of our “budget”. We live in a decent house – but nothing fancy. We really need to paint the house, finish off our kitchen, and could do with some new furniture in a few rooms. We have some electronics – but nothing fancy. Clothing – have to say it is decent too – but not over the top – and we really only shop for clothes on occasion or when we need. The gifts we exchange with each other are usually homemade – no surprise big, lavish gifts (except for this year’s anniversary!). We put a limit on what we spend for the kids on birthdays and Christmas and there are very few “extra” gifts during the year. I’m a pretty good grocery shopper and buy lots of sale stuff. We don’t have a cottage, entertain that much, go out for “fancy dinners”, drink alcohol, or have our kids in tons of extra curricular activities. Maybe our savings aren’t as high as others either.

These are all choices we make to allow us to spend more on travel! We chose to invest in building memories through travel than to invest in stuff. And we are both on the same page with this.

Yes, we are lucky and am thankful every day. But, it doesn’t just happen. We have to choose to make it a top priority.

The challenge is to sit down and figure out what your values are: family, marriage, security, health, freedom, spirituality, independence, creativity, confidence, excitement, peace of mind, fun, friends etc. etc. and then plan your finances around them.

You will want to allocate your money differently depending on your values. It’s much easier to stick to a “budget” if it is meeting your core values, as opposed to “what someone else told you you should do with your money”.

Values are what motivates you and shapes your life. They need to be the main part of your master financial plan.

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