Are You Getting Your Best Return on Life, Part II
Most of us are familiar with the concept of Return on Investment (ROI), but last month we considered a variation to this measurement called Return on Life (ROL). Goal planning experts will remind you that you must measure what matters, and ROL is an attempt to consider measurements around ‘How well are you doing in living the life you want, with the money you have?’
Last month, we considered how you can balance the books between quantitative and qualitative factors in developing a financial plan. The suggestion was that one can do this well by focusing on ROL to ensure that you pay as much attention to your non-financial goals as your financial ones.
These calculations are important and necessary, but work only if you understand the qualitative goals your investments are meant to fund. In the traditional financial planning model, the primary components include asset management, risk management, debt management, tax planning, estate planning, and income planning. While each area is essential to your financial well-being, there is an underlying assumption inherent in the solely quantitative approach used to perform these functions: everyone is essentially the same, and the only thing that really needs to change from one person to the next is which numbers get plugged into the formula. This is probably not an assumption you would want someone to make about you.
What are your core values?
How would you answer this…It all comes down to _______? This probably gets you pretty close to a core value. Your values and principles with money are not the same as everyone else’s, nor should they be. The most important aspect to be derived from the numbers is to achieve the quality of life you desire. The numbers do not exist to drive life but to support it.
Because many people view retirement as purely an economic cliff from which they will jump once they’re in their 60s, they have done little – if any – work on all the life issues accompanying such a transition.
Using money in support of life
It is important that your life before and during retirement is both challenging and enjoyable. At some point, almost all of us will require help – meaning we’ll have to make contingency plans. These contingencies include long-term-care insurance, in-home care, and the like. These investments are a natural part of ROL planning because they help you continue to live a full and balanced life as long as possible.
When you achieve balance – and as a result, true financial freedom – you will still be confronted with issues that organically arise with retirement. These manifold issues include the following:
- How you best spend your time and energy
- How you address your personal health and well-being
- How you continue to challenge yourself
- The role you play in your parents’ and/or children’s futures
- The kind of legacy you want to leave
- Your definition of success
It is important to understand the impact of money on every area of your life. By engaging in a financial planning process focusing on what’s happening in your life––adjusted financially to facilitate those happenings––you will reach the ultimate goal of using your money to create a better life. |
