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PLANNING POINTS: Is your money improving your life?
By Pete Alepra, - RBC
Mar. 19, 2023 5:00 am, Updated: May. 17, 2023 10:24 am
Money can be defined in a lot of different ways, including accumulating it what it can buy. But a healthier way to look at money is to put it in proper perspective and understand how it can support and complement the important things in our lives.
Developing a plan and prioritizing the important things in your life will illustrate how money may be utilized as a tool to help you live the life you want. Accumulating as much wealth as possible may no longer be the primary objective of your wealth plan.
The traditional path to saving and investing has been to focus on the future (retirement) and rely solely on numbers and investment return.
However, this approach often can be misleading since it doesn’t consider your individual circumstances. “Beating the market” is often a misleading objective because it may not have a relevant impact on your personal situation.
All clients look for a higher rate of return, but the volatility and emotional price of positioning their money to achieve a higher return may not be compatible with their overall objectives and risk profile.
Understanding your goals and priorities and the return required to fulfill these is more critical than attempting to achieve the highest return possible. The priority is to allocate your money so it complements and provides a return that allows you to fulfill the goals and objectives in your plan.
Questions to ask
What is relevant is developing a wealth plan that considers the following:
- How much do you currently have invested?
- What is your current cash flow, and how much are you able to save comfortably?
- When will you need cash flow or capital from your investments?
- What will be your expenses be at retirement?
- What other large expenditures will be required to fulfill your goals?
- Do you feel comfortable with the fluctuation of your account values?
By incorporating these factors into your planning, you can begin to understand what needs to change (or not change) in order to live the best life possible without overextending yourself.
You may realize you are in a position to pursue some of your goals sooner than initially expected or possibly new goals you would never thought of.
Money as a utility
Money does not exist for its own sake. Money exists as a utility that we use to improve our lives.
How your returns compare to any index, fund, investment category or another person is less relevant than whether your plan reflects a successful path. Measure your success against your objectives, not someone else’s.
In order to develop a successful plan, you need to understand where all your money is coming from and where all your money is going — and why.
Understanding the “why” will allow you to create a plan that works for you and your individual circumstances. You may be living above your means and need to make changes to your lifestyle. Or you may already have enough and be able to take a trip or enjoy another experience you have been putting off.
Your answers to these questions can determine the inflow and outflow of money, as well as your financial progress or decline. Knowing your age, and how long you expect to live, isn’t enough to develop a wealth plan that works.
Quality over quantity
Your money is there to serve you, not vice versa. Instead of focusing on someone else’s definition of success, create your own definition of a successful plan and life with regards to money.
A meaningful plan puts quality before quantity by managing your assets in a way that may help your life and provides peace of mind.
In traditional wealth planning, the primary components include asset, risk and debt management, as well as tax, estate and income planning. All of these areas are essential and necessary for a strong financial plan, but there is more to developing a strong wealth plan than numbers.
We all have different values and principles regarding money. Each of us has a history, present circumstances and future hopes that are unique. By focusing only on numbers, we miss enjoying life now and in the future if we only concentrate on accumulating wealth.
A plan that is designed with your priorities and specific financial goals as its foundation can allow you to focus on the important things in your life while lessening the overall pressure that money can sometimes bring.
There is no greater freedom, and no greater wealth, than living the best life you can with the money you have.
Pete Alepra is managing director-financial adviser with RBC Wealth Management. Comments: (319) 368-7023; firstname.lastname@example.org. Investment and insurance products offered through RBC are not insured by the FDIC or any federal agency, are not deposits or guaranteed by a bank and are subject to investment risks.