Take These Two Steps to Become Intentional with Your Financial Strategy
After I earned my PPL, I began taking my kids and friends up. We flew the mighty C172 and poked a lot of holes in the sky. We burned precious avgas and many times, went nowhere. I began to desire more. I wanted to fly faster and further. At the same time, I did not want to be limited by a layer of clouds at my departure or my destination. Planning VFR only trips in the Southeast part of United States became frustrating. I decided to become more intentional about my flying and obtain my instrument rating.
Many professional pilots come to this point financially somewhere along their journey. I hear it often -Tim, I’d like to become more intentional about my financial strategy. A distant memory are the days of grinding through ratings and flying anything possible to build hours. You’ve built your time, you enjoy your career and believe it or not, there’s cash leftover at the end of each month… or there could be. Sometimes an additional issue nags at you as well… taxes, a second property, retirement planning, a general unease with personal finance. Whatever brings you to this point, welcome, it’s a good place to be.
Here are two steps you can take to become more intentional about your financial strategy.
- Know What You Want!
This has very little to do with finance and everything to do with you. You’re living the one life you have, what do you want out of it? When you begin organizing the priorities in your life, no mater how big or how small the financial aspect of your life will begin to take shape. I suggest clients separate the things they want into two categories: intangible and tangible.
Intangible: What gets me out of bed in the AM? What passions drive me? Who are the people that I care most about and want to share these passions with? What kind of lifestyle do I want to have? How do I want to spend most of my non-working time? If I wasn’t working, what would I be doing? When its all said and done, what impact will I have made? Is making an impact important to me? Understanding what drives you will help you make confident decisions about your future. This exercise can be fun to do by yourself, but the complexity, and satisfaction increases when you’re sharing it with a spouse.
Tangible: Here’s where you’ll match specific, obtainable goals with a dollar amount and a timeline. What kind of home or second home would I like and when? How much income will I need to support the lifestyle I want now and in retirement? How much will my toys of choice cost to obtain and maintain and when would I like to get them? How much should I put aside for my children’s college or their long-term health and maintenance? What type of lasting legacy do I want to create for my family and how? When should I structure and fund it?
These are just examples. Your intangible and tangible goals are as unique as you are, and they should be. The value of doing this exercise is the intangible priorities, inform the tangible goals and both create a framework that you’re passionate and energized about as you pursue them.
- Understand Your Cash Flow
The second step to becoming intentional about your financial strategy is understanding your cash flow. If your intangible passions inform your tangible goals, your cash flow is key to making it all happen.
Income: When you understand where your cash is coming from – this helps you know: how reliable it is, the threats it may face, the taxes you can expect, delay or avoid, what duration you can expect, the levers you can pull to increase or decrease it. Examples include a W-2 pay check, profit sharing, self-employment income, dividends, interest and capital gains, passive real estate income, alimony, partnership distributions, annuity payouts, pension distributions and the list goes on. Each source of income has its own distinct characteristics of how it can and will support your goals. All of your income cannot be treated equally.
Expenses: You don’t keep a written budget? You’re not alone! Many people don’t. But you should. This isn’t about rice and beans or even a judgement session. This is simply about understanding where your cash is going. Most of my clients who do this for the first time or the first time in a long-time report that its extremely informative and enlightening. Just like the income side, when you know where your cash is currently being spent, you know what changes you can make, if necessary to support your goals. You may find ways to increase the efficiency on your expenses which will free up cash for you to deploy back to one or more of the goals that are important to you.
By taking these two steps, you have clearly started becoming more intentional about your financial strategy without jumping into the technical details of portfolio management and the other aspects of personal finance. The definition of strategy, after all, is “a plan of action or policy designed to achieve a major goal or aim”. Without any goals, there is no strategy.