The Planner's Perspective: Life Planning > Financial Planning

Paul Morrone |

By Paul Morrone, CFP®, CPA/PFS, MSA

Back in my college psychology class there was a lesson about Maslow’s hierarchy of needs – something I thought I’d never see again after that final exam. However, this lesson has proved incredibly important in understanding life planning, an integral part of the financial planning process. It teaches us that those who have accumulated financial resources may not be looking to evaluate the success of their financial plan simply by looking at a long-term rate of return, and instead, place a higher degree of importance on different intangible measures that directly impact their happiness and sense of self-worth. While rates of return, asset allocation, investment objectives, etc. are all important and relevant topics, none of those address the emotional needs that impact our day-to-day lives. A more meaningful discussion to have as part of an ongoing planning engagement is how to best leverage wealth in a way to most efficiently accomplish the things that put a smile on our faces at the end of the day.   

Back to Maslow for a second – his general hypothesis is that every human has basic needs (food, water, health, safety) in order to survive. Maintaining these needs is paramount to all others, and once fulfilled, allows an individual to focus on emotional development, establishing meaningful relationships, and bettering themselves as a person. The tie here to financial planning is establishing a baseline expectation for what it will cost to maintain the basic needs for a lifetime, and how to position excess assets to allow you to focus on the more fulfilling aspects of life. It should come as no surprise that aside from the negative financial ramifications of overcommitting economic resources, it could be detrimental to one’s emotional wellbeing to compromise basic financial stability in pursuit of higher-level goals.

With a baseline established, the focus shifts to the top of the pyramid and life planning goals. This means uncovering and quantifying what is most important to reaching your pinnacle of happiness. From experience we know there is no silver bullet, but rather a unique and comprehensive vision that pieces together all the different aspects of life that you value most. Some may value the financial freedom that their assets provide them, allowing them to have a very liberal budget that could include travel, a boat or a vacation home. Others may be happier retiring early, giving them the flexibility to babysit for their grandchildren, spend time with their family or care for an aging parent. In many cases, individuals may want to gift money to family members, cover education or medical expenses or help with the down payment on a child’s first home. Some choose to give back, using both their time and money to donate to charity, volunteer in the local community, adopt a child or foster pets.

The ironic part about the hierarchy of needs is that, like a financial plan, it is different for everyone. An extreme example of this are Bill and Melinda Gates, who have donated an estimated $36 billion to charity, a wildly unrealistic goal for the 99.9% of us who didn’t found Microsoft. A more realistic goal may be visualizing how you are going to spend the 168 hours per week once you no longer have to wake up for work each day. How will you spend your time? Who do you want to spend it with? What are your hobbies or passions? If the focus of your meetings with your financial planner are solely about rate of return, it may be time to start looking for someone who will ask you the important questions.

The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.