As we reflect back on 2019, it is clear that the stock market had a great year. It feels good reviewing your end of year household balance statement and see your net worth growth due to the stock market, but what happens if the stock market is not so kind in 2020? After all, 2018 is a very recent reminder that not all years are as good to us as 2019. The best way to deal with the stock market volatility is to consider a perspective that goes beyond your investments — by adopting a Return on Life™ (ROL) financial plan. Compared with a return on investment (ROI) focused financial plan, which only takes the numbers into account, the ROL philosophy considers that money does not exist for its own sake, but rather as a utility, a means to an end, but it is not the end itself. When we adopt the ROL mindset, our values are the end — and our money is the tool that will help us live out those values. So how do we adopt an ROL mindset for 2020 and beyond?
1. Identify your values. If money is a tool that helps you live out your values, you need to know what those values are in order to make sure your spending is in alignment with those values. Identifying your values and understanding the “why” enables us to create a plan that works for you and your individual circumstances. You may be living above your means and need to make changes to your lifestyle. Or you may already have enough and be able to take a trip or enjoy another experience you have been putting off.
2. Understand that ROI is out of your control. Recognize that the traditional path to saving and investing has been to focus on the future (retirement), and rely solely on numbers and return on investment (ROI). However, this approach often can be misleading because it doesn’t consider your individual circumstances. “Beating the market” is often an artificial objective because it is not likely to have a substantive impact on your unique situation. How your returns compare to any index, fund, investment category or another person are less consequential than whether you are meeting your own ROL goals. Your success is measured against your objectives, not someone else’s. You don’t need to keep up with the Jones’ – or anyone else.
3. Check to make sure you are in alignment. And no, I don’t mean going to a chiropractor. In order to fully adopt the ROL mindset, you need to understand where all your money is coming from and where it is going to make sure it aligns with the values you’ve identified. In Stephen Covey’s book, ‘The 7 Habits of Highly Effective People’, he identifies two “circles” — the circle of concern, and the circle of influence. The circle of concern are things that can affect our portfolio, but have no real control over: the stock market; geopolitical issues; etc. Inside the circle of concern, however, he places the circle of influence. These are the things we do have control over. Things that are inside the circle of influence for a financial plan are things like how much you save, what you spend our money on, and how we react to stock market ups and downs, etc. Covey says that proactive people focus on the circle of influence, while reactive people focus on the circle of concern. The ROL philosophy asserts being proactive and making sure your savings and spending are in alignment with your ROL goals. Why focus your savings plan on something you cannot control, such as investment returns? Rather, focus on the part of your financial plan you can control, such as savings and spending patterns.
4. With ROL, you don’t give up the best of life or the best parts of yourself just to get money. The money is there to serve you, not vice versa. Instead of focusing on someone else’s definition of success, write our own. ROL puts quality before quantity by managing your assets in a way that improves your life and provides peace of mind.
In traditional financial planning, the primary components include asset, risk, and debt management, as well as tax, estate, and income planning. All of these areas are essential and necessary for a strong financial plan, but there is more to developing a strong financial plan than numbers.
We all have different values and principles regarding money. Each of us has a history, present circumstances, and future hopes that are unique. By focusing only on numbers, we miss enjoying life now, and in the future, because we only concentrate on accumulating wealth. A financial plan that is designed with ROL as its foundation is designed to build freedom, relieve the pressure of ROI-focused planning, and ensure your plan meets your goals.
There is no greater freedom and no greater wealth, than living the best life you can with the money you have in 2020 and beyond.