To help you understand what lifestyle financial planning is, I want to begin by asking you a question;
If you had the choice;
Would you die with hundreds of thousands of dollars in your bank account or
with a lifetime of experiences and memories?
Very few people pick money in the bank. And that is because we humans are emotionally driven.
But if we are emotionally driven, why don’t we all run off and pursue our dreams of becoming an actor or sailing solo around the world or starting that cupcake business?
Simply, our logical brain requires safety and stability before we can fully enjoy the emotional desires we have in life.
Without safety and stability, we cannot enjoy the nicer things in life
If we relate this back to the relationship between lifestyle & finances, we often think of these as being two competing goals. We think of lifestyle as being an emotionally driven choice and finance as being logically driven. We are so often convinced that to enjoy financial success we must sacrifice our lifestyle and if we enjoy life we are missing an economic opportunity.
So how does one balance these seemingly competing goals? By understanding the following;
Firstly, lifestyle goals and financial goals are a matter of co-existence, not competition.
Secondly, the relationship between lifestyle & emotions and finances & logic are not mutually exclusive. Lifestyle decisions can be logical and financial decisions can be emotional.
Thirdly, no two people share the same lifestyle and financial aspirations.
Too often, people think that financial planning is about hoarding money away and living on toast and noodles for 20-30 years – then living a lavish lifestyle only once you have retired.
People assume the relationship between lifestyle and finances is a matter of choice, not co-existence.
The philosophy of lifestyle financial planning embraces co-existence. It says we can still enjoy life’s moments, without breaking the bank. A lifestyle financial planner will look at what kind of lifestyle you wish to live today and into the future and work with you to build the plan to achieve both. Yes, there may be some sacrifice to be balanced – but balance is the key.
Building a financial plan around your lifestyle is about enjoying the moments of today, while knowing you have made plans to ensure you can live the life you want into the future as well.
It embraces a responsible strategy to satisfy the brains need for safety and stability, while satisfying the heart’s desire for experiences and moments.
When we think of lifestyle and finances we can think of lifestyle as being emotionally driven, i.e I aspire to have a big house, I want to take many holidays etc. and finances as being logical and black and white. I.e I should make more money than I spend or I need to reduce my debt as I get older.
But people forget that financial decisions can be emotionally driven and lifestyle choices can be logical.
Understanding how emotions and logic play a part in your decision making is important because a plan is often driven not by lifestyle or financial decisions, but emotional decisions, made in light of logical information.
As an example, keeping a mortgage throughout retirement may be the logically correct economic decision, but most people do not feel (emotional) comfortable with this, so they decide to extinguish the debt before they retire.
There are no two individuals who share the exact same goals in life. Building on this, we all differ in our emotional and logical tendencies. Some of us see the world as black and white, some see the world in many shades of colour.
What can be a logical lifestyle choice for someone may be an emotional lifestyle choice for someone else.
Importantly though, there is no right or wrong viewpoint. That is why a lifestyle financial planner should be empathetic and put aside their personal biases and help the client reach a decision through questions, rather than preaching what they ‘should’ do.
Lifestyle financial planning is about bringing the different facets of a person’s life into picture and then making financial decisions to support the lifestyle goals for today and tomorrow. It isn’t about saying we can all live luxurious lifestyles today without working hard or making sacrifices, but it is about finding a balance between financial decisions and lifestyle decisions.
It is also about acknowledging we are different when it comes to financial decision making and as such no single plan can be the same between two individuals.
Disclaimer: The information in this article is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any of the information you should consider the appropriateness of the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant Product Disclosure Statement or other offer document prior to acting on any financial product or implementing any financial strategy.
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