There have been countless books and articles written about this topic.
What I'd like to talk about today, is what is the ultimate purpose of financial planning, (and the ultimate obstacle). Financial Planning are buzzwords in themselves, so why not just say, what is the ultimate purpose of (and obstacle to) achieving financial security?
Some may say that the purpose is self-evident, and to some degree it is, however, as with many goals in life, they are not ends in themselves but simply means to ultimate ends.
As we spend our short time on this planet, the ultimate goal is to be happy, period! While some will argue about the need to make a difference, or to create empires or find cures for cancer, or produce great works of art, in the end, all those are simply means to the ultimate end of living a happy life.
It is not politically correct to admit to having selfish ends, and some argue that goals are more worthy if they have selfless ends. That argument, however, is so easily disproved as to make it laughable; because if helping others with "no regard for yourself" makes you happy, then you've defeated the argument. Helping others, (or any other goal) would have to actually make you unhappy to be truly "selfless".
Unless you believe the goal of life is to suffer (some people do!) than I think you'll see the obvious fallacy of reaching for "selfless goals."
So achieving financial security is simply another of many stepping stones, albeit a crucial one, to achieving our happiness. Financial security simply means to be self sufficient, and not need to rely on others for our survival! And that brings not only happiness but dignity.
Some will argue that family, health and ethics are more important than money. The problem with these arguments is that they represent false dichotomies. In other words, it's not 'either/or' its both! To provide for your family requires money. The biggest cause of divorce today is financial stress. One of the biggest causes of health problems is stress, and a major cause of stress for people is financial worries. Health care, of course, costs money! Ethical considerations will show that whenever people compromise these, they will rationalize and justify doing so, because of the need to provide for their families financially. Happiness is achieved when all aspects of life are in balance and money which is simply a way to measure our individual productivity plays a part in all of them.
How do we achieve financial security? Well first and foremost, we must be productive in some way, shape or form. Each of us has some talent or skill which uniquely endows us to produce some value that other people are willing to pay for with the money they have earned by producing a value with their own unique talents or skills. Once we produce the value, then managing it is next. (I acknowledge that some people may be born with physical or mental limitations to this, but they are very rare, particularly in our modern age of technology where almost everyone can contribute; for the unfortunate minority who cannot, they are the responsibility of their parents, and will also benefit from the volitional aid of compassionate individuals)
The three threats to personal financial security can be summarized simply in the following: dying too soon, living too long, or becoming ill or injured somewhere along the way. One or more of those events will be part of every human being's existence.
Additional risks include loss of property through fire, natural phenomenon or theft.
Dying too soon results in someone's productivity being cut short, as well as the resultant income. If no provisions have been made through insurance for this, that person's dependents or life partners will be seriously impacted. In fact, our earning power, is our largest asset. Many people will think of young people starting out, as having no significant assets, but it is at that point in our life when our future earning power is greatest.
Living too long, is a matter of outliving our savings. When a person retires from productive endeavours, if they so choose, then again, income stops. If adequate savings have not been accumulated, then that person will be forced to continue working beyond the age they had hoped to stop, and quite possibly in failing health, often contributing to a reduced life span or see themselves dependent on the charity of others in their final years. None of these outcomes are conducive to living a happy life.
Unforeseen illness and/or accidents can limit or terminate a person's ability to be productive, and again, if no insurance is in place for this, the result is that any accumulated assets will need to be used for bare necessities and will not be available for their stated purpose. (usually to provide for the eventuality of living too long stated above). Not only will those assets be squandered to replace lost income but also in the attempt to finance the additional medical costs that are invariably associated with these events. This loss of assets will lead to the same misery outlined in the last paragraph, which no one wants.
I also mentioned the loss of assets through fire, natural phenomenon or theft and again, failure to insure against these losses can also result in major impediments to financial security.
Now, none of what I've mentioned above will be new to many people, but what may be new, is "keeping it simple". So much of what is written about financial planning dwells on whether mutual funds are better investments than stocks for example or what type of insurance is better than another. These topics have some validity however, I will suggest that they are to financial planning what the choice of colors or options are to the proper choice in purchasing an automobile. These are generally the small details!
Most people who fail to achive financial security don't fail to do so, because of these details. (this is a generalization that admittedly has exceptions, but is true far more often then not, I assure you.)
Most people who fail to achieve financial security are defeated by the very same enemy which prevents most of us from living full, happy lives in virtually every aspect of our lives and that enemy is PROCRASTINATION.
I mentioned in an earlier post that it is a sign of intelligence to think LONG TERM. I did have a comment from a reader that some people believe in "living in the moment" or "one day at a time" in an attempt to show that my statement was not necessarily true for everyone. The fact is that, living "in the moment" does not, in any way, contradict the concept of humans thinking long term. Animals live in the range of the moment, because they do not have the mental capacity to evaluate future consequences of future actions (or inaction), but humans have this capacity and need to use it. (or suffer the consequences) Living a happy life requires in fact, that we are grateful for and enjoy the present, but also that we plan for the future.
It is a topic for another post, as to why, in fact, procrastination is so common, and whether or not people "should" not do this; for now, I would suggest simply that it is a fact, that it is extemely common, not only for financial planning but health choices and in relationships and the consequences are serious in all aspects of life.
This is the main reason that people use "coaches"; other people who will make them accountable and save them from their own tendency to procrastinate or not to give their best effort.
Ironically, the people who are the most self-disciplined, and are less guilty of this then most, are most likely to recognize that they still haven't mastered procrastination, and who will actually seek out coaches to "push them" just a little harder than they are already pushing themselves. Witness that world class athletes virtually always have coaches.
Tragically, many of us, who are less disciplined and actually have a greater need for this, resist very strongly someone "telling us what to do" and avoid what we need the most.
In the field of financial planning, that "coach" is the financial advisor, who, while educating us to the proper choices in the "details" mentioned above, most importantly helps us to avoid the procrastination that is the true obstacle to our reaching the financial security that will give us happiness and dignity we all seek.
As such, good financial advisors contribute significantly to people achieving happiness and dignity and avoiding misery which is the alternative. Many people are extremely grateful to their advisors for helping them to reach their goals and consider their partnership with this individual to be critical to themselves and their families.
The fact is that procrastination is so common that the vast majority of life insurance and retirement savings programs are the direct result of an advisor "selling" someone on the idea of putting these prgrams in place sooner rater than later. (avoiding procrastination)
Knowing this, one would think that advisors would be in high demand. They are in fact, in extremely high demand by financial services firms like Sun Life with which I am associated, because these firms appreciate people's tendencies to procrastinate and realize that consumers will not, in the majority of cases, purchase our products of their own initiative, and so they need advisors to show people a "sense of urgency" in planning for the future.
Because of this same procrastination habit, advisors also face, from their prospective clients, on a daily basis, rejection! The very people who have the greatest need are the ones most prone to procrastination. Successful advisors are able to deal with this and in so doing, provide a great value to their clients, thus maximizing their personal productivity through exchanging value for value.
That is why in a recent post, I referred to advisors as heroes, and talked about our financial centre's vision of HEROES, CHANGING LIVES FOREVER!
Thanks for reading..... The title of this has a link to my personal web page including video testimonials of people who have chose this great career!
