Why – it’s a simple word but one that doesn’t seem to get nearly enough attention, particularly when it comes to money and financial planning. Yet it’s one that can help to clarify your financial goals and create a path to get there.
Over the years I’ve had many clients or friends that have asked me for some general guidance with investments, or to review their investment portfolio. The first thing I ask them is what is your objective?
Usually the answer is something like “I want more money”, “I want $1 million” or “I want to pay off the mortgage”. My question in return then is why?
Perhaps it’s because you want to work less. Or maybe you want to start a business that you have been planning for years, to explore the world or to have a perceived level of security. More often than not, the $1 million figure is an arbitrary amount that’s been plucked out of the air as the amount that you believe is needed to achieve that.
Take it a step further if you wish – why do you want to work less? Why do you want to travel the world? Why do you want to live in a waterfront property? Why do you want that level of financial security?
The simple process of asking why you have set your financial goal can actually lead to the realisation that there are other ways to achieve that underlying desire, it can give you clarity of how you will achieve it and it can create the motivation to follow through.
For me, my number 1 short term financial goal is to pay off our mortgage. Why? Because by owning our home we will free up some cash flow, allowing us to work less. Why do I want to work less? Well it’s not so much working less as being less reliant on paid employment and having the freedom to pursue those things that are of interest and value to me, and having the underlying security of owning our home.
I will admit, it’s not the most financially logical “why”, but by thinking through the question and crunching some numbers, I discovered that if we really wanted that freedom right now, there were other options. We could sell our current home and buy a cheaper one, immediately clearing the mortgage. We could live an even simpler life, spending less on holidays, renovations, and getting rid of ‘luxuries’ like the swimming pool. Or I could just get comfortable with still having a (albeit small) mortgage for a longer period of time.
We love where we live, we love our adventures away, and despite the lack of logic, I inherently like security when it comes to money (it’s just part of my money personality), so we are forgoing that extra freedom in the very short term and harnessing the underlying why to provide us with the motivation to smash down our mortgage at a fast rate of knots. But it’s nice to know that there are other options.
So I challenge you – think about what your financial goal is, or perhaps form one. But don’t forget the question of why. Maybe that underlying dream is closer than it seems, or maybe just asking the question will create enough motivation to make the goal a reality.
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