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Tuesday, April 5, 2011

Step 1 To Greater Financial Happiness

Most financial happiness comes from a combination of meeting your obligations, providing a level of security for your family, sharing some of your success with others, and having an overall sense of control over your current and future financial position.  Each one of these elements of financial happiness can be both learned and designed.  If you plan for them and create behaviors that support them, you will find that financial happiness is a talent and an ability that you can develop. 

Step 1:  know thyself.

I don’t like financial plans that jump right in to determining IRA contribution amounts or choosing an asset allocation model if it doesn’t first have some benchmarking for where you currently are on the continuum of financial happiness.  There are many different ways to get at this, but I like to start with these and then build from there:
1.      What about your finances do you spend the most time thinking about?
2.      Which of your financial decisions are you most proud?
3.      Which of your financial decisions do you wish you could do over or change?
4.      What roadblocks do you feel are keeping you from feeling more in control and happy?
5.      My attitude about money in my life is __________________________
6.      I make financial decisions in my life as-if my attitude about money is ______

Now we’re getting somewhere.  I find that people who really care about answering these with deep insight are the ones most likely to make the behavioral changes that lead to an improvement in their financial happiness. 

I think most people wouldn’t find this step the hardest part of gaining financial happiness (the hardest part is actually doing the right things habitually – I’ll write about that later), but I believe that without this first step and the related elements of getting to know who you are financially, you undermine the efficiency of any other efforts you undertake.
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