Monument Wealth Management Articles

What’s the Money For? How to Make a Purposeful Plan for Your Wealth

Dec 07, 2023 Investing & Portfolio Strategies

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You’ve worked hard to build your portfolio, but have you ever stopped to ask yourself what it’s all for?

A lot of people lose sight of why they are actually investing. So really, what’s the purpose of your wealth? Where do you want to spend your money?

Maybe you have some ideas in mind, like supporting a comfortable lifestyle, sending kids off to college, or gifting to a charity that’s important to you. Maybe you don’t know yet, and that’s fine too.

From a life-happiness perspective, taking time to evaluate what matters sets you up to live your best life. You can reach your golden years feeling accomplished and satisfied with the life you’ve led and the mark you’ll leave behind.

From a financial perspective, having a goal in mind is absolutely crucial for putting a wealth plan in place. With something measurable and definable at the end, you can survey your options and craft the best strategy to get where you want to go. Once you have a goal in mind, you can identify the best financial plan to get there – with time to spare.

When driven by clear goals, this plan leads to more peace of mind and assurance that your investment strategy aligns with your ultimate desires. During the next inevitable down market, you can stay invested and wait it out knowing that the market will recover and your plan will still be securely in place.

With that in mind, let’s dive into how you can nail down the purpose of your wealth and use it to build your personalized wealth plan.

What’s the Money For?

Building a wealth plan is more than just simple money management. It’s about purposeful planning to get what you want from your money.

So, what’s the money for? If you’re not sure where to start, let’s break down the basics. There are four places your money can end up:

  • You can spend it during your lifetime
  • You can give it to family and friends after your passing
  • You can give it to charity
  • You can give it to the government in the form of taxes

The best part is that with some planning, you can choose between or amongst them. Start by determining which one (or ones) calls to you most.

For example, you might want to travel the world. Whether that’s sprinkled in over the years on your vacation days or planned for after retirement, that’s money to spend during your lifetime.

You might value living in a beautiful home in the city of your dreams, you may want more than one beautiful home, or you may want to cover a child’s education so they can graduate debt-free.

Are any charitable causes dear to your heart? Do you want to see your donations in action while you are alive or do you prefer to leave a gift after you pass away?

Do you dream of starting your own business? Or if you’re already a business owner, have you thought about your exit plan? This can tie into the conversation too, such as whether you’d like to sell the business or pass it down to your children.

Don’t feel like you can only choose one. The money can be for any number of things – whether that means gifts, accomplishments, or simple enjoyment. As you narrow down what matters, you can start to prioritize how much to allocate to each bucket.

It’s also okay to decide you want to spend it all in your lifetime and “die with a dollar in the bank.” It just takes some planning.

And yes, we’ve had clients who even chose that last bullet on the list. Even after achieving all their goals among the first three bullets, they had enough left over that they didn’t mind how much went to the government in taxes.

When we work with clients, establishing this mindset is a crucial first step. It isn’t just about how we manage your money. Instead, it’s about what you want that money to do for you during your lifetime or for your legacy after your passing. To do that, we have to start with and ultimately know, “What’s the money for?”

4 Common Challenges While Defining Goals

As you begin to determine “What’s the money for?,” it’s essential to understand a few common roadblocks you might encounter along the way. Your path will require thorough research, difficult decisions, and possibly a bit (or a lot) of backtracking, but stay the course and know it’s worth it in the end.

Challenge #1: A Goal of “More”

Your goal shouldn’t be just “to make more money.”

Unfortunately, this is one of the most common answers we hear when talking to people about their wealth.

“More” is not definable. It’s also unachievable, as there will always be “more.” You’ll end up spending your life as a slave to your money when in reality, your money should be working for YOU.

What’s worse, “more” always drives riskier and more concentrated investing. During an inevitable down market, your “more” might just disappear overnight. You might feel like your entire life has been flushed down the toilet, then be tempted to sell off all your investments to cut your losses before it gets worse. But by selling in a downturn, you’ll miss the rebound and will be locked into those losses.

Challenge #2: Unreasonable Goals

Another common mistake is when clients set unreasonably high goals. While there are benefits to dreaming big and challenging yourself, the goals must be feasible.

If there’s a major gap between your desires and your financial reality, scrutinize those goals more closely. Consider if there’s another way to reach that goal in a way that aligns with your means.

For example, let’s say you’ve created a goal of leaving 1 million dollars to each of your four children. Why 1 million? Is there a deeper reason behind the financial gift, like covering a down payment on each child’s first house or allowing them to graduate debt-free? If that’s the case, you may be able to land on a more reasonable gift amount that still achieves the underlying goal.

If you don’t want to compromise on your goal, what are you willing to sacrifice to make it happen? You might be able to achieve those lofty goals, but you’d have to pull certain financial levers you don’t want to pull – such as significantly cutting back your lifestyle or downsizing into a modest home.

Finally, unreasonable goals will always drive excessive risk taking and bring an investor back to the first challenge: creating a goal of “more.”

Challenge #3: Estimating the Cost of Living

Many Americans don’t have a solid grasp on their current monthly costs and expenses – let alone what they can expect to pay in retirement. When you factor in healthcare costs, travel goals, and a desire to help fund a grandchild’s education, your bills might increase more than you expect.

This ties into the previous challenge. At your current income level, the goals you have in mind may be perfectly reasonable. But depending on when you choose to retire, that sudden drop in income may hurt more than you realize if you haven’t properly estimated your costs.

Of course, this isn’t all negative: many people also forget about the social security they will receive. When you set up and account for all your sources of income in retirement, you can better calculate how they line up with your goals.

Challenge #4: Managing Your Emotions

When you’re working toward a goal that’s dear to your heart, it’s only natural that you’ll be more emotionally invested in the outcome.

Fear and other emotions often crowd in when we talk about money, and unfortunately, hasty, scarcity-based decisions can quickly torpedo your portfolio. Having a plan in place is invaluable in giving you peace of mind and assurance that everything is on track, but you may still grapple with these emotions during life-changing events or dips in the market.

This is why a wealth manager can be so valuable to help you form the foundation for stable, logical decision-making. An unbiased, outside perspective that has a fiduciary obligation to serve your best interests can strip away the fears and focus on the facts.

How to Build Your Wealth Plan

Once you’ve let your ideas ruminate for a bit, it’s time to get into the details. When you’re ready to start sketching out the logistics and building a plan forward, here’s the process we work through with clients.

Define Your Buckets

What’s the money for? Start by answering just that. You might have some ideas floating around in your head by now, and putting ink to paper is the first step toward making it a reality.

Unlike that earlier list of broad buckets, it’s time to dig into the specifics. For example, you should list out all the friends and family members who could be involved with your plans. If you want to travel, name any specific locations you absolutely must visit.

At Monument, we break the conversation into seven buckets:

  • Goals and Objectives – What accomplishments do you hope to achieve in life?
  • Interests – What hobbies or causes are dear to your heart? Where do you like to spend your time?
  • Family – Who in your family will you consider in these decisions?
  • Legacy – Where do you want your money to go after you pass away?
  • Financials – What is your current financial picture? Make a list of your income, assets, liabilities, savings, expenses, and insurance.
  • Relationships – Which professional contacts might be involved, such as a wealth advisor, attorney, CPA, or business partner?
  • Communication – How do you prefer to communicate with your advisors? The need to communicate is imperative to building a successful plan. Make sure everyone is communicating in your preferred medium.

We conduct a Blueprint Meeting in our planning room, with each bucket listed on a whiteboard. But if you don’t have a wealth advisor (or a whiteboard), you can do this on your own with a simple pen and paper.

This process is a great way to ensure that a married couple is on the same page for their money goals. You may find that your goals are drastically different than what your significant other has in mind, and it’s better to account for all perspectives early on in the process.

Specificity in your answers is key, as they provide the best guidance when it comes to crafting your plan. But if you just aren’t sure yet, a broad goal is much better than nothing.

For example, maybe you have a goal of paying for a grandchild’s education, but you don’t actually have any grandchildren yet. You don’t know how many grandchildren to plan for or at what time frame they’ll approach college age. You don’t know if those grandchildren will attend a state college or an Ivy League school.

As another example, maybe you are planning to sell a business and wish to establish a charitable legacy but you don’t know what specific charities you want to gift to or how much. It may make sense to estimate what several years of gifting could add up to and fund a donor-advised fund as a way to lower taxes on the sale and make specific gifting decisions later.

While you may not have the answers to everything RIGHT NOW, you do know what matters to you.

In cases like these, you can pin the thought as something to revisit in the future. It’s okay to not have all the answers as long as you understand the importance. There is always homework to be done, and a good plan allows room to adjust and fill in the gaps down the road.

Plan for Goals as Liabilities

Once you have a clear picture of your financial situation along with the goals you hope to achieve, you can start to work them into your larger wealth plan.

When we work with high-net-worth clients, we plan for these goals as liabilities. Just like a debt or mortgage, we treat these goals as something you can’t simply erase so we can see how it will affect the overall path.

To return to the previous example, if you’ve decided to give $1 million dollars to each of your four children, consider that a $4 million debt in your portfolio. You need a plan that shows you how to pay that debt down to zero by some point in the future.

By integrating this “debt payoff plan” into your portfolio, you can see how it’ll affect the rest of your financial picture. You or your wealth advisor can begin budgeting out your current income and expenses, along with how much must be set aside in order to “pay off” that $4 million debt. You will also need to factor in some assumed long-term annual rate of return that will leverage the power of investing to add a tailwind to that plan.

After crunching the numbers, you may find that the goal is achievable as long as you work several more years beyond your original planned retirement date. If leaving that legacy to your children is truly dear to your heart, this might be an acceptable decision.

If you return to the question “What’s the money for?” and decide that it’s not about the amount but rather the foundation it will provide (i.e., a down payment or debt-free graduation), then the plan can change accordingly.

Revisit Your Plan Often

No matter where you are in your money management process, no more than twelve months should pass between when you review and reevaluate how things are going.

Always check in on your plan during years with significant life changes – such as marriages, births, the sale of a business, sending a child to college, and so on. These monumental events often go hand-in-hand with new goals that you’ll have to account for in your plan.

While you can certainly perform these check-ins with yourself and your spouse at home, it often helps to have a professional eye trained on your finances.

And remember, great investors don’t tinker with their portfolio, they tinker with their plan. The plan will always change as your life changes, but it’s your plan that should drive your investment strategy – never the other way around.

Talk with Your Advisor

If you do work with a wealth advisor, don’t make big decisions without consulting them first.

While this seems like obvious advice, it’s not uncommon for individuals to put off speaking with their advisor and end up regretting a financial decision down the road. (Sidenote: If you’re afraid to call your advisor for fear they’re going to tell you something you don’t want to hear – you should consider getting a new advisor!)

Consider this scenario: you might want to make a large donation to your church or alma mater because the cause matters to you. You think your advisor would encourage you to keep those funds for yourself in your portfolio, so you decide to make the donation without telling them.

A good advisor won’t discourage you from making that donation. Instead, they would help you make the most of your donation in a strategic way. They could recommend setting up a donor-advised fund or planning the donation for a specific year in order to get the most value out of your contribution.

If you don’t have an advisor, that’s okay, but don’t make big decisions without thinking them through. Sleep on your decisions and research financial vehicles available to you in order to best carry out your goals as you see them.

Start Designing Your Financial Future

Creating and executing your wealth plan is like taking care of your lawn: every single person who owns a house is capable of mowing the grass, edging the sidewalk, pulling the weeds, planting the annuals, raking the leaves, and fluffing the mulch. When you have all the tools in your shed, you can easily spend Saturday and Sunday landscaping.

If this sounds like your idea of a good time, you can set aside that time and save some money by doing it yourself instead of hiring a landscaper.

However, most high-net-worth individuals are busy with their businesses, careers, and families, and they value their precious downtime. You might want to take your kids to little league games, school plays, or even a trip to Europe. When you are busy with these important activities, your yard can grow quite unkempt but you might not notice until you go to sell your house.

Just like anyone can maintain their own lawn, you can also create a wealth plan on your own by taking the time to define what the money’s for, research your options, and implement a financial plan. But if you value the guidance and expertise of a collaborative team that specializes in working with people like you, we offer honest, transparent wealth advice that tackles your complex situation by focusing on “What the Money’s For.”

Monument’s Private Wealth Design process acknowledges that life, like money, is complex. A solid plan is created by revisiting it regularly, and adapting it as you and the world evolve.

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David B. Armstrong, CFA

President & Co-Founder

Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....

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