Are you putting your money to work for you? How do those choices impact the rest of your life? And what about the other resources that you have?
These questions are important to answer to achieve the best results in your life. Too often we start with the first question without thinking about our own unique life situations. To help you align your actions with your life goals, you should be thinking about your future first.
Looking at asset allocation and financial products too early in this process can lead you terribly astray. So before you open up your investing app and start scrolling through stock tickers, pull up a seat and a piece of paper. It’s time to turn on the most powerful computer you own.
Find Your Goal Posts
Before you can lay any plans, financial or otherwise, you need to set your goal posts. These goal posts will help you dial in your aim on what is truly important to you, and provide a measurable indicator of how you’re doing.
What are your goals? Travel the world? A cottage on the lake? A new electric vehicle? Early retirement?
These are your goals. Jot them down. Set those goal posts.
Once you think you’ve got your sights set, think about why those goal posts are there. Is this something you truly want? Too often we find ourselves playing the most unrewarding game of following the follower. When we play that game, the goals that find their way to the top of our lists aren’t really our goals at all. Instead, they are the goals of our family, our friends, our children. Society's “goals”, not yours.
Be honest with yourself here. Are those goal posts really yours?
Measure Your Progress
Once you know what your goals are, you need to analytically scrutinize what is actually required to reach them. How much does your dream life actually cost?
Have you ever guessed how many jellybeans are in a jar? Or how many ping pong balls fit inside an empty 747? Humans are usually pretty poor at estimating how much is required when the amounts get large. Without using some tools of analysis, we usually guess at numbers that are either way too high, or way too low. That’s why we’ve looked at different tools like the 4% Rule, to help narrow down the answer to the question, how much do your goals cost?
Using tools like the 4% Rule will help you understand how far away those goal posts really are. Irrespective of whether those posts are 100 steps away or 100,000, knowing the distance will let you know how far you’ve come and how far is left to go.
Allocating Your Assets
Once you’ve examined your life, and where you are heading, you need to look at how to get there. To do that, we examine how you assign your assets.
Traditionally, people assume that asset allocation boils down to how much you put in different investment categories. Real Estate, Fixed Income, Stocks, Crypto, Foreign Currency, etc. Those financial products are important, but often leave off Human Capital. Your skills, your time, your energy.
How you invest your resources, particularly time and energy, has a huge impact on your financial future. Investing more in your skills and well-being will increase your value as an economic contributor. As you become better at your job, you increase your ability to earn.
After you’ve invested in yourself, you need to look at how to put your money to work. While low cost ETF’s serve as the backbone for financial advice that I deliver, that isn’t the only lever you have to play with. Some people need to be changing how much is invested in each area.
For example, picture Fred as having a stable job as a teacher. His earnings are relatively flat year over year, and he has a high level of job security. Depending on Fred‘s goals, he might want to look to be more heavily invested in stocks (low cost ETF), willing to take on the additional investment risk given his relatively low-risk career.
Suzie on the flip side, is a commission-only sales rep. With variable income, she might want to look into higher weightings in fixed income investments, to help smooth her earnings out throughout the slower periods.
How you allocate your resources is incredibly important. But it’s also a very personal decision, heavily influenced in where you are, and where you’re going.
What are your goal posts? Are you moving in the right direction? Does how you invest your time, energy, and money all align with the direction you chose? Invest wisely, and there’s no limit to how great your life can be.