5 Keys

Five Keys to Financial Comfort

Gregor McDonald, CFP®

It’s not enough for you to be well educated on your money or financial matters and yet not enjoy the money you have.

Since financial comfort is an emotional issue, based on how you view your money rather than on your calculation of what you have, the keys to success have less to do with financial planning and more to do with your perception of what your money is supposed to do for you.

Your financial comfort is not going to be based on how much you have, or how well you’ve invested it, financial comfort is an emotional concept. Your comfort assumes that whatever your financial situation is:

  • It doesn’t cause you undue stress on a daily basis
  • You can do the things you want to do given the lifestyle you’re used to
  • You can handle the unexpected challenges to your financial situation
  • You can use your money to reflect the values that guide you through the next phase of your life

Key Number One: Education

Everyone should have a general idea of what investment options are open to them, the tax considerations on their retirement nest egg and understand the basics of investment and interest rate markets.

Your knowledge in financial areas should protect you from irrational fears or stress if possible, by arming you with enough knowledge to view your financial situation without emotion.

Key Number Two: Emotion

For many, money is an emotional catalyst that can act as a stimulant or a depressant depending on the day and the individual. Some become so focused on their financial situation that it overshadows everything else in their lives. They live in fear the money will not be there when they need it or that it will disappear leaving them destitute, others use money as a drug, spending it freely to make them feel better.

Understanding how your emotions can cause money to become a stressful issue in your life is important in maintaining financial comfort for the next phase of your life.

Key Number Three: Efficiency

Financial efficiency is having the knowledge of where your money is going and you’ve worked out a spending plan that allows you to manage your resources and take away much of the uncertainty as to whether you have ‘enough’. If you’re aware of how you spend your money and where you allocate your resources, you can maximize its use to serve your purposes.

Keeping close tabs on revenues and expenditures is important in the business world. It’s also important in your personal life as a way of managing uncertainty.

Key Number Four: Efficacy

Efficacy is your ability to use your money and other assets in a way that’s in keeping with the values you hold. It represents how effective you are using your money to benefit the causes, charities and people you really care deeply about. Is there a part of your next phase of life nest egg you can use in ways that will make you feel good about who you are as a person?

Part of financial comfort is the knowledge you’re using your capital in a way that goes beyond simply looking after your normal living expenses.

Key Number Five: Equilibrium

The last element of financial comfort is really your personal assessment of the first four elements, education, efficiency, emotion and efficacy. It’s not enough for you to be well educated on you money or financial matters and yet not enjoy the money you have. Some people become so caught up in understanding the nuances of markets, investment and tax strategies and asset allocation the forget Bill Bachrach’s advice that “It’s not what money is but what money does”.

Equilibrium simply means you’ve combined all four elements in your financial planning in a way that makes your money and other financial assets a positive or a comfort in your next phase of life and not a stressor or an aggravation.

Gregor McDonald is a Certified Financial Planner Professional operating Vision Financial Planning in the Niagara Region as a Fee-Only financial services provider and can be reached at gm@gregormcdonald.com. www.gregormcdonald.com

The LifeFirst Approach to Financial Planning, 2005 by Barry LaValley with Kirk Lowe.