Our clients always want to know:
How much money do I need for retirement?
How much money do I need in an emergency fund?
Will what I have be enough?
They always seem disappointed to learn that there's no easy answer
Of course, we can give you lots of formulas:
• 3-6 months of expenses in an emergency fund
• 3x your current salary by age 40
• 4x your current salary by age 45
• 8 times (X) your salary by age 60
In the end, those are just formulas
We have clients who live comfortably on social security and not much more
We have other clients for whom millions is not enough.
What makes the difference?
But more importantly - what's important about money to them.
Everyone has attitudes about money, many of which were shaped in our childhoods. Why we save, or don't save, why we spend, or don't spend, what amount of money in the bank makes us feel comfortable. These are all ingrained.
Money may mean:
Money may be
• A tool
• A means to an end
• THE end
Most of us probably grew up with parents who didn't talk about money. In fact, most of us would probably rather talk about our sex lives than tell each other how much we earn!
Did you know, however, that understanding what money means to you can actually help you set financial goals that are realistic and comfortable for you? Goals that you will be able to keep because they resonate with you deep inside.
While I'm not certain of the question's origins, I first learned of it about a decade ago when I attended a seminar by Bill Bachrach. It was about the importance of understanding your values when making major financial decisions.
The purpose of the exercise I'm going to describe isn't to think in terms of goals. It's meant to go deeper than that, or to get at the reason why we have certain goals. The first answers people come up with are usually easy - things like security and freedom. But once we pause and really think, we can move even deeper still, or into what might be called the "why" of money. This question can get uncomfortable because it forces us to get really clear about our underlying reason for doing things. It also forces us to face some inconsistencies in our lives.
This is a great exercise to do when going through a divorce. In fact, at that seminar all those years ago, I was in the midst of my divorce and panicking about finances. If possible, do this with a friend but you can also do this by yourself.
Each of you asks the other - or yourself: What's important about money to you?
The answer to that question - let's say security - becomes the next question.
What's important about security to you?
The answer to that question becomes the next question - whether it's one word or a whole sentence
Keep going until you've done about 7 or 8. What do you notice?
For me, the inconsistency is time - money to me is security, freedom from worry, which allows me to do the things I love, spend time with people I love, give back to the community, and learn new things.
But when I find myself working late nights and weekends am I losing sight of my own personal "why" of money. Am I working more hours to make more money and not having enough time? When you're arguing with your ex-spouse about asset division, child support or alimony are you losing sight of your own personal "why" of money?
This year I spent 10 days in Costa Rica with my son, Alec. Obviously, money, and some good financial planning, allowed me to do this. We kayaked, snorkeled, rappelled down waterfalls, went white water rafting, did a free fall Tarzan swing and went one a mile long superman zip line. The ability to have that time was precious.
In the Superman style zip line, the rope ties on your back, and you are "flying" forward with your body facing down. I thought the scariness level of this Superman style was going to be like the regular upright, seated zip line, having just done 10 of those. Nope! From the point of view of technique, it's actually easier, because you do nothing while in the regular zip line you need to know how to brake and stay positioned. More importantly, in the regular zip line, your hand is holding on to a rope connected from your waist to the overhead line. In the Superman style, your arms are stretched wide to right and left and because you are face down there's nothing to hold on to.
I never thought of this before, but apparently, at least for me, holding on to something, as useless as it is, brings a sense of security. When your hands can't hold on, you feel helpless. Powerless. Not in control. The worst thing was, not only that you "don't need" to hold on, but you "must not" hold on! You are sternly told, as they push you off "Don't touch the rope"!
Holding the rope on your back is virtually impossible anyway, holding the line in front is dangerous. Even if you don't hurt yourself, you might accidentally slow down and stop in the middle of the ride, hanging high from the ground.
Can you see all the comparisons to a divorce? I can! Holding on to your marriage when it's over by being unwilling to compromise and continuously arguing about money can also hurt you. Knowing what's important about money to you can help you quantify just what you're truly arguing about, how much is really enough and when you need to just let go.
What's important about money to you? The answer should be your inner driving force.
Renee Senes is a Certified Divorce Financial Analyst (CDFA), a financial neutral and a trained mediator. She specializes in working with clients, their attorneys or mediators through all phases of the divorce process.