Setting and achieving goals is essential to success in your financial life. Goals provide a forward-looking target that your progress is measured against. Goals provide a vision for a future that is superior to the present. It is for reasons such as these that goals are motivating and why goals inspire action. However, before deciding what your goals should be there's an important step that must come first. And this step is one that will deeply enhance your inspiration and motivation to achieve your goals. Before you can set goals, you must first know what your core values are.
Values are not goals and goals are not values. Goals are specific, measurable, and attainable. Values on the other hand are not attainable. Values represent what you believe to be the most important aspects of life, and are the underlying motivators that drive us to take action. Values influence your actions in ways such as: how you spend your time, who you spend your time with, your chosen occupation, and of course - how you spend your money. Examples of common personal values are: family, wellness, freedom, security, self-reliance, etc.
Understanding what your values are is so important in the financial planning process because when you match your spending to your values, you maximize the utility of your money and you bring meaning to your spending. Additionally, having a firm understanding of what you value most will help you limit spending money on the things that actually do not mean very much to you.
Values are not developed or set like goals are, but rather they are revealed. It could be said that you do not choose your values, that your values choose you. Everyone's core values are unique to themselves. Your values begin in childhood and are influenced over time by factors such as: life experiences, society, and education. You can expect that your values may change over time.
Figuring out what your core values are is not as challenging as you may think. There are many assessments out there that will help guild you. Two that you may want to consider can be found at Personalvalu.es or at www.think2perform.com/our-approach/values. If you'd prefer a more freeform version of the values discovery exercise then you might want to try this one by Scott Jeffrey: www.scottjeffrey.com/core-values-list/. The assessments should take around 10 minutes each to complete. Once you've completed one or all you should have a list of your top five core values. Five seems to be the magic number when it comes to the number of core values that you should narrow down to.
After you have your five core values identified, you should take some time to consider and write down the responses to these two questions for each value:
- This value means to me:
- This value is important to me because:
Once you have a firm understanding of what your values are, you can start to contemplate how to translate your values into actionable financial goals. Here are some examples of how commonly held values might turn into financial goals:
Value Financial Goal
Freedom Achieve financial independence by age 55
Self-Reliance Pay off all debts, including the mortgage, by the year 2030
Generosity Contribute $100 per month to a favorite charity
Adventure Save $500 per month to be used towards an adventurous trip or activity
Security Save $1,000 per month to establish an emergency fund
Wisdom Contribute $500 per month to your child's college education fund
Once you have specific, measurable, and attainable goals developed decisions related to how you spend your money will become easier. For purchases of significance, you can now ask yourself - is this purchase in line with my core values and how will it impact my financial goals? By addressing these two questions you'll have a greater level of confidence that you are maximizing the finite resource that is money by directing it towards spending on things, experiences or people that mean the most to you. If the purchase is not in line with your values and goals, then it's easier to pass on. This is so important because the more things you decide to pass on that are not really that important to you, then the greater capacity you will have to go big on the things that you really do care about.
Knowing your values can positively impact other elements of your financial life as well. For example, it may inform decisions related to your estate planning. Perhaps you'll leave more of your estate to the causes that you care most about that align with your values. Your values may impact how you invest. For example, if one of your core values is sustainability then you may be more likely to invest in companies in the renewable energy sector. Perhaps self-reliance is one of your core values, this may make it more likely for you to purchase insurance policies like disability and long-term care so that you are better protected against needing to rely on others in the future.
Hopefully by now you can see how by first understanding your core values, it becomes easier and more rewarding to arrive at, and accomplish your personal financial goals. Understanding your values is a sure-fire way to add meaning to your financial decisions. I welcome the opportunity to discuss how we can transform your values into your financial goals.
Breakwater Financial, LLC is a registered investment advisor. The content of this blog post is for informational and educational purposes only and is not to be considered investment, legal or tax advice. If you have any questions regarding this blog post, please contact us.
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