"Being the richest man in the cemetery doesn't matter to me. Going to bed at night saying we've done something wonderful... that's what matters to me."
When thinking of financial planning and investing, the assumed purpose is wealth maximization. In a broad sense, this is accurate. You wouldn’t engage in these activities with the hope of losing money. Yet, in reality, increasing your wealth is not the ultimate goal, only a tactic to help you achieve something far more important.
The true purpose of financial planning and investing is to achieve greater freedom; freedom that will enable you to live the life you want. When viewed in this context, risk becomes less about market gyrations and the volatility of your portfolio and much more about whether or not you are moving toward the life you want.
The first step in the financial planning process should, therefore, be focused on gaining clarity on what’s important to you and what you want your life to look like. The best way I’ve discovered to accomplish this is by exploring deeper and more reflective questions than are typically asked in a financial advisor’s office. For example, imagining what you would do if you had all the money you needed, but also reflecting on what you would miss out on if you had only 24 hours left to live. Another exercise might ask you to think about your ideal day, week, and year and then contrast it with your current reality.
Questions and exercises like these, while not directly related to your money, help you gain clarity and help us understand what is most important to you. Once we know what the big picture looks like we can begin drafting a plan with quantifiable and actionable goals that will bring you closer to living the life you want.
Aspects such as investing, taxes, insurance, and estate planning are all still critical components of your plan and ones that should indeed be optimized. The difference is that they should be optimized not just within the context of your finances, but also your life goals. The result will be a truly integrated financial life plan that not only mitigates financial risk but also reduces the risk of missing out on the life you want.