Are you uncertain about how to embark on your financial journey? I don’t blame you.
Personal finance is complex. It’s not something that we were taught in school and you’ve likely learned about it on your own. On top of this, money is a tangled web of emotions that we have also been trained not to talk about it. No wonder why money causes anxiety!
Most people don’t know where to start with their financial decisions, which results in inaction. Therefore, I wanted to present a metaphor to turn your complicated financial journey into a very simple, easy to understand story. My hope is that this metaphor helps you understand the framework for your financial journey, so you are ready to start taking action in your financial life.
Think of your financial journey like…sailing.
Picture an ocean that lies in the middle of where you are today and where you want to be tomorrow. Your goal is to successfully build a boat and sail across that ocean. Sounds simple, right?
Well, there are a few parts to this that translate perfectly to your finances –
- Where would you like to go?
- Where are you today?
- What type of sailboat do you need?
- What is your sail plan?
- Who will be your captain and crew?
Is this a bit corny? Sure. But I bet after reading this, you will remember the importance of going through all of these steps before making financial decisions.
On a side note – I don’t know how to sail 😂. I’d love to learn in the future and I certainly enjoy being on boats, but I’m not an avid sailor or anything.
Step 1: Where would you like to sail to?
The first step is to define your desired destination. For some people it will be a relatively close destination and for others, it may be a trip to the opposite side of the world.
If you don’t know where you are sailing to, it’s impossible to know what type of boat, sail plan and captain that you need.
This is why it’s so important to first think about what you want your money to accomplish for you before you start making any major financial decisions.
Now, this is not easy. In fact, I think it is one of the most challenging parts of your financial journey. Why? Because we’ve been trained to just view “retirement” as our desired destination. We need to make the proper financial decisions with our money so we can comfortably “retire” at the age of 65. It’s easy to say this is our desired destination without challenging it.
But what does retirement even mean to you?
In my experience helping clients navigate these life planning conversations, I’ve learned the majority of people just want their money to enable them to spend their time in a way that is aligned with their core values. This could mean spending more time with family, traveling, working a job they truly love… the list goes on.
In other words, I believe the true measure of wealth is time, as opposed to money. How would you spend your time if you were completely financially independent and didn’t have to work another day in your life?
Everybody is different (especially spouses!) and it’s crucial that you paint a clear picture of what you and your spouse want your life to look like if money wasn’t an obstacle. This is the most important step in your financial journey because it ensures you are starting to sail in the right direction.
Step 2: Where are you sailing from?
The next step is to get crystal clear on where you are today. Everyone’s starting point will be different and is dependent on your current financial situation.
This step involves answering questions such as –
- Who is part of your financial journey (children, aging parents, etc.)?
- What do your income and expenses look like?
- What types of assets do you have (bank accounts, investments, real estate, etc.)?
- What types of debt do you have (student loans, mortgage, credit card, etc.)?
- What does your tax situation look like?
- Do you have any insurance coverage (life, disability, umbrella, etc.)?
- Do you have any estate planning documents (wills, health care proxies, etc.)?
After gathering all of the data for your current financial situation, you have clarity on where you are today so you are ready to explore the type of sailboat you need to get you to your desired destination.
Step 3: What type of sailboat do you need?
Depending on where you are today and your desired destination, some people may need a really small sailboat. Others may need a 70-foot sailboat. The further the distance, the more advanced sailboat you need.
Either way, you need the proper structure to build the boat.
This step includes financial decisions such as –
- How much cash should you hold?
- What is your investment strategy?
- How should you pay down your student loans?
- How should you save for college?
- How much life insurance do you need?
The answers to these questions are entirely dependent upon where you are today and where you want to be tomorrow. If you aren’t clear on either of those, it’s very difficult to figure out the right type of sailboat you need.
If you start sailing with the wrong boat, you are likely to have a lot more issues during your journey.
Step 4: What is your sail plan?
You know where you are today and what type of sailboat you need to get you to where you want to be tomorrow. Now it’s time to pull together the sail plan.
How long will it take? What type of turbulence will you likely encounter? How will you handle the turbulence?
This step includes outlining your short, mid and long-term priorities, agreeing to reasonable deadlines and anticipating the various things that could throw you off track.
For someone with a small boat and relatively short journey, there may not be too many action items. For someone with a larger boat and a further journey, there will likely be many action items to implement.
The clearer and more thoughtful your sail plan is, the better prepared you are for your journey.
Step 5: Who will be your captain and crew?
The best sailboat and sail plan are worthless if you don’t have the right captain and crew to execute it.
At a minimum, I recommend that you hire the right crew – experts like CPAs, estate planning attorneys and insurance agents to help you with specific needs.
But who will be your captain? Do you want to do it, or would you like a financial planner to do it for you?
A financial planner is often the focal point of your financial team. They understand you at a very personal level – your values, goals, fears and dreams. They work with you one on one to constantly review, monitor and adjust everything in your financial life to guide your journey to financial freedom. They handle the majority of your financial needs and facilitate communication with other experts when needed.
The answer of who will be your captain depends on a few questions –
- How complex is your sail plan?
- How skilled are you to navigate the wind and rough seas?
- Are you able to confidently change course when your desired destination changes?
- Do you enjoy sailing? Or would you rather kick back with a drink, spend time with your family and have the peace of mind that an expert is guiding your journey?
I don’t think there is a right or wrong answer here. Some people will be just fine being their own captain. Some people probably could be their own captain but would still rather spend their time in other ways and have the peace of mind that an expert is guiding them. Other people truly need a captain because they require a large sailboat and have a very complicated journey.
I will say that the majority of people are likely to change their destination. What you think you want now will very likely be different in 5 years and almost certainly be different in 10 years. The only certainty in financial planning is that things will be uncertain! Your goals, values, financial situation and needs will constantly change as your life changes. You want to have the flexibility and skill to be able to change the direction of your boat easily.
- Each step in this process is dependent on the previous step. You can’t start with step 5 if you haven’t gone through steps 1 – 4. This could result in you sailing to the wrong destination, having the wrong type of sailboat or having the wrong crew. It is so important to go through the exercise of defining what you want your money to accomplish for you before making financial decisions. Budgeting, saving and investing is only useful if you know what you are budgeting, saving and investing for.
- Your journey will not be a straight line. Investment markets will fall. Your career will change. Your family situation will evolve. Be sure to build flexibility into your financial plan so you can adjust your finances to reflect your ever-evolving life.
- Even if you feel confident that you want to be your own captain, I highly recommend getting a one-time comprehensive financial review from an expert so you feel confident that you have the right plan in place before starting to sail. This type of investment into your financial future could prevent huge mistakes in the future.
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