by David Bach
So let’s get started!
Pretend the two of you are arriving at our offices at AE Wealth Management. You’re going to meet with me in order to create your own personal Value Circle.
On the desk in front of you is a blank Value Circle sheet, waiting for you to tell yourselves and me (the recorder of the values) what matters most to you.
Here are some simple tips to get you through the process.
First, relax. This is not a test. It’s meant to be fun. Our objective here is simple honesty. Write down only what feels right at a gut level. Don’t put down a value just because you think it “looks” good. If it doesn’t reflect how you feel in your gut, it won’t really mean anything to you, and you won’t focus or act on it.
Start with the simple question: What’s really important to you? When you think about your life and the things that really matter, what value is most important to you? What’s the purpose of money in your life?
Remember to stay focused on values—not goals, not things, not stuff to do or buy. If, say, you worry a lot about money, you might be tempted to list as a value “having a million dollars.” But that’s not a value; it’s a goal. The underlying value in this case would probably be security or freedom. The million dollars is just a way to fulfill one of those values. Similarly, many people say they want to travel. But “travel” is not a value; it’s a thing to do. The value that travel promotes might be fun, excitement, or personal growth.
As they occur to you, write down values in the Value Circle until you have listed five core values that you can commit to focusing on over the next 12 months. You might find out that there are more than five values that you want to focus on. Some of my clients and students have come up with as many as 10 values. There’s nothing wrong with that, if you are serious about your commitment. It’s just that in my experience most people find it difficult to focus on more than five at a time.
That’s it. You have completed the Value Circle. Give yourself a pat on the back.
IF YOU FIND YOURSELF GETTING STUCK…
Not to sound like a broken record, but your Value Circle needs to center on values or it won’t work. Many people struggle with the difference between a value and a goal. Remember, values are about being; they define a way of life. Goals tend to be about doing and having; they involve stuff. To help you differentiate between the two, I’ve listed some common values and some common goals (see chart). Use these examples to get yourself started, but don’t just copy them down. In order for this exercise to be of any real use to you, you really have to care—at a gut level—about the values you choose.
VALUES VS. GOALS
VALUES GOALS
Security Retire with a million dollars
Freedom Pay off mortgage
Happiness Be debt-free
Peace of mind Not worry about debt
Fun Travel
Excitement Ski with friends
Power Be the boss
Family Spend more time with kids
Marriage Plan more “date nights”
Friends Annual “guys” or “girls” trip
Making a difference Donate to charity
Spirituality Go to church or temple
Independence Stop working
Growth Go back to school
Creativity Learn to paint
Adventure Take trip to Africa
Fulfillment Stay married
Confidence Exercise
Balance Plan life better
Love Have great marriage
Health Lose weight
PLEASE DON’T SKIP THIS STEP
It’s really easy to skip a step that requires you to stop, think, and act—especially when it involves something as unfamiliar as looking at your values. Some of my students—and even some of my prospective clients—think these value exercises are a waste of time, that they are nothing more than New Age, feel-good fluff. Well, believe me, there is nothing New Age about looking at your values. The Greek philosopher Socrates was talking about this exact type of thing back in 400 B.C. The key to human advancement, he taught, could be expressed in two powerful words: “know thyself.”
So even if you and your partner would prefer to keep on reading, rather than stopping right now to create your Value Circles, I urge you to overcome your hesitation and carry out the exercise. The nine-step journey you are taking builds on itself. In the next chapter, we will look further at your Value Circle and come up with five “do” and “have” items to match your five values. So completing this step will make the next step much easier for you.
A FINAL WORD ABOUT VALUES
It’s amazing to me that so many of us can be with our partners for years, sometimes decades, and not know their most deeply held values. The fact is, there’s just about nothing that can have more of an impact on a relationship than knowing what is really important to you and your partner. Unfortunately, they don’t teach us in school how to look deep within ourselves and discover this knowledge. Nor do they teach us how to share it with the people who matter most to us.
If you have children, consider doing this exercise with them. There’s no reason young kids can’t start living life in line with their values. Think about the impact you could have on your children if you actually knew what their values were and helped make them real. Think about how much better your life would be if you had started doing this yourself when you were still a child.
There’s also, of course, a very practical reason to define your values as clearly as you can. It’s my experience that people will do more, and act more quickly, with regard to their finances when they understand how their actions relate to their values. The truth is that people will do more to protect their values than just about anything else in life. Certainly, values are a lot more powerful than any sense of obligation or responsibility. Values are not “to do” lists in disguise, nor are they New Year’s resolutions such as “save more,” “spend less,” or “lose weight.” People don’t lose their motivation or get bored with their values. Once you’ve defined your top values clearly and written them down, they almost never leave you.
Ultimately, your values are what motivate you and shape your life. In fact, they have already motivated and shaped you, whether you know it or not. It’s just that now you’ve chosen to be more proactive about them by consciously deciding which of your values you want to focus on.
Now that your Value Circles are complete, keep them handy because we’re going to use them to start figuring out your specific financial goals. But before we do that, we need to look at where the two of you currently stand financially…
Because you can’t plan where you want to go until you know where you are starting from.
STEP 3
PLAN TOGETHER…
WIN TOGETHER
Now that you’ve created your Value Circle, it’s time to start creating your Purpose-Focused Financial Plan. To do this properly, you and your partner need to be on the same page—that is, both of you should be organized financially and planning for the future as a team. Teamwork is key to this effort. Over the years, I can’t tell you how many times I’ve seen couples with modest incomes manage to finish rich simply by applying common sense and working together.
The best example of this I know involves a couple named Jerry and Lisa.
Jerry telephoned me on a Monday morning. That coming Friday, he said, after 30 years at a government job, he was going to be retiring. Could he and his wife come in on Thursday, he asked, to discuss his retirement plans?
Jerry mentioned on the call that he had an IRA with a balance of $153,215. Jerry was 52.
Uh-oh, I thought. Either Jerry just inherited a lot of money or he’s in for a rude awakening—and I’m in for a horrible meeting.
As it turned out, I was the one in for a shock. When Jerry and Lisa came into my office on Thursday, they were holding hands like newlyweds, literally bubbling with excitement. As Jerry talked about his plans and what he would do with his free time, Lisa kept ex
claiming, “Isn’t it great he can retire so young!”
After 10 minutes of this, I had to interrupt them. “What am I missing here?” I asked Jerry, who handed me his statement. “I only see $153,000 sitting in your retirement account. How can you possibly retire?”
Jerry smiled. “David,” he said, “I can retire because Lisa and I have been planning this for the last 30 years.” He went on to explain that right after they got married (he was 20, she was 18), he went to work for the government. He’d worked for the government ever since, bringing home an annual salary of about $40,000 in recent years. Lisa worked part-time as a hairstylist, earning about $17,000 a year.
Over the years, he continued, they’d purchased their home and a second house, a rental property, both of which they now owned “free and clear.” They also had three cars and a boat, all fully paid for. “The kids are all finished with college,” he concluded, “and Lisa plans to keep working for another 10 years. With her income and my government pension, I tell you, David—we won’t be able to spend it all! We’re set!”
I was stunned. As a financial advisor, I had plenty of experience with millionaires who were in constant financial trouble because they spent more than they made. Yet here was a couple who never earned more than $60,000 a year—sitting on top of the world.
“How did you do this?” I asked them. “How did you pay off your home, buy a rental property, save for college, put money away for retirement, and the rest—and do it all on a government salary and a hairstylist’s income?”
Now it was Jerry and Lisa’s turn to provide financial advice. What they taught me changed my life. It could also change yours.
A LITTLE PLANNING CAN LEAD TO BIG REWARDS
Jerry and Lisa’s story begins with their parents. Both sets of parents were very conservative when it came to money, and they taught their children to use credit cards responsibly and never take on more debt than was absolutely necessary. “They told us that the way to buy a house was to get a 15-year mortgage and work toward paying it off as soon as we could,” Jerry explained. “My father said if you don’t have enough money to pay cash for something, don’t buy it. My mom said that the time to start planning for our future was the first year we were married. ‘Make your financial goals together each year,’ she told us. ‘Have fun making them and have fun sticking to them.’ ”
“But what about the rental property?” I asked. “How did you manage that?”
As Jerry told it, that was easy. “We bought our first house when I was 20, so it was paid off by the time I turned 35. Without any more mortgage payments to make, we had all this extra money each month. Lisa and I figured we could either waste it, or we could buy another house and rent it out. We realized if we bought another house, we could have it paid off by the time I hit 50, which is when I planned on retiring, and then we’d have extra income from the rental to live on.”
And the three cars and the boat? They, too, turned out to be “easy.” All the cars are used—none newer than seven years old, but all are well maintained so they drive like they are new. As for the boat, it was a long-held dream of Jerry and Lisa’s that 10 years of disciplined saving made a reality.
Could it really be that simple? You just start planning at a young age, you work on your goals and dreams, you handle your money responsibly—and you get to retire in your early fifties? I looked at Jerry, still skeptical. “You know,” I said. “You’re pretty lucky Lisa still wants to work. If she didn’t, you’d still have to.”
Jerry shook his head. “It’s not about luck,” he replied. “Like I said, Lisa and I have been planning for this for a long time. About 10 years ago, I told her I didn’t want to keep working for the government forever, and she said, ‘Well, work until your pension kicks in and then I’ll work part-time until I’m 60.’ ”
With that goal in mind, Lisa set about finding a job she loved, one that allowed her flexibility and the chance to be her own boss. It took a few tries but she finally found it with cutting hair.
“I’m telling you,” Jerry said, “anyone can do what we’ve done. It’s just a matter of planning it together.”
I began this chapter with Jerry and Lisa’s story because it is one of the best examples I know of a happy couple who never made very much money but who were still able to achieve all their goals because they planned their financial future together. The basic point can’t be emphasized too much: if Jerry and Lisa could do it on a government salary and a part-time hairstylist’s income, there’s no reason you or I can’t do it, too! All it takes is planning.
FAILING TO PLAN TOGETHER IS THE SAME AS PLANNING TO FAIL TOGETHER
Unfortunately, most couples are not like Jerry and Lisa. They don’t plan together. Rather, they just let their financial life happen to them.
Letting your financial life just happen to you is like getting on an airplane with no clue as to where it’s heading. It goes without saying that if you want to fly from San Francisco to New York, showing up at the Oakland airport won’t do you any good. Likewise, getting yourself to the San Francisco airport on time but then getting on a plane bound for Los Angeles won’t work either. Finally, even if you go to the right airport and get on the right plane, there’s no guarantee you’ll reach your destination unless you’ve got a pilot in the cockpit making sure you stay on course.
All this is obvious stuff when it comes to travel. Shouldn’t it be equally obvious that the same principles apply when it comes to planning your financial life together?
THERE ARE THREE FUNDAMENTAL TRUTHS OF FINANCIAL PLANNING
You can’t plan your finances if you don’t know where you’re starting from.
You can’t plan your finances if you don’t know where you want to end up.
In order to stay on track from your starting point to your destination, you have to monitor your progress.
In this step—“Plan Together…Win Together”—we will discuss some simple tools and strategies to help us with that seemingly daunting task of getting our finances in order so that we can stay on track. We will also learn the importance of goal-setting in our relationships with our partners and in creating a rich financial future.
SO…DO YOU REALLY KNOW WHERE THE TWO OF YOU ARE RIGHT NOW?
If I were to ask you and your partner right now to describe your current financial situation, could you tell me your net worth? Do you know what your assets and liabilities and expenses are? Could you easily list on a piece of paper what investments you own, how much equity you have in your home, and on what and to whom you owe money? Is all of this information neatly organized in some easily accessible place? Could you quickly get your hands on it if you needed to? Or would getting your records together be an impossible project?
Don’t kid yourself about the answers to these questions. Be honest. Think back to that quiz you took in Step One. How well did you score? How well did your partner score?
If you’re like most couples, you probably didn’t score as well as you would have liked to. That’s okay. In fact, it’s normal. The goal right now is to start addressing those problems. Remember, you didn’t buy this book to be normal, but to be above average—to be extraordinary, even. You bought this book—and are investing your time to read it—in order to finish rich.
EIGHT IRAS, SIX STOCK CERTIFICATES, TEN CREDIT CARDS…
Bill and Nancy were a “normal” couple in their late thirties who came to my office because they wanted to get their financial act together. Married for 10 years, with two children, the two had been meaning to get their finances organized for years.
They brought with them a big file box of confusing paperwork—financial statements, annual reports, canceled checks, old receipts, you name it. “Here’s everything,” Bill announced. “Where do we start?”
Going through someone’s financial records can be an amazing experience. It certainly was in the case of Bill and Nancy. For years, they had just thrown everything even vaguely financial into the file box. The good news was
that they had kept a lot of records. The bad news was that they had clearly never bothered to look at most of what they had kept. Most of the reports and statements were still in the envelopes in which they had been sent—and most of the envelopes had never been opened.
After going through the contents of their box for a while, I discovered that between the two of them Bill and Nancy had at least eight separate independent retirement accounts. Eight IRAs for a couple still in their thirties. They also had five bank accounts, 10 credit cards, a home mortgage, several savings bonds, six stock certificates, and on and on. It took us the better part of an afternoon to figure out finally how much money they had and where it all was.
Insane, right? Totally the exception, right?
Wrong.
While you may not be this disorganized, I’ve learned the hard way that most couples don’t really have a great system for getting and keeping their finances organized. This stuff is not taught in school, and most people are too busy working during the week to figure it out on their own. So they don’t.
Don’t worry, though. After one too many meetings like the one I had with Bill and Nancy, I sat down and created a system to help couples get their financial house in order quickly and easily. Over the years, thousands of people have used this system to take charge of their financial lives, and now I am going to share it with you.
